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CONTENTS
ISSUE 33
Editor’s Letter Hello readers,
T
his month on our website, we asked readers: What needs to be done to improve Kenyan banking? We were not just singling out one country for the sake of it—regulators, bankers and customers across Kenya are asking themselves that very question as another bank’s receivership hit headlines (more details on pg. 6, and the poll on pg. 50). Interestingly, the number of voters on the question surged just a few days before print. There could be a few reasons for that (maybe some of you just discovered our website?), but it seems to have fallen almost exactly on the day that we released our shortlist for the fourth annual, and biggest yet, East Africa Banking Awards (complete list on pg. 12). As our CEO said, times of turmoil can be the best for identifying who is doing it right. Many Kenyan banks made it onto the shortlist for this very reason—and you can vote on www.cpifinancial.net right now to see the best win. Speaking of turmoil—the World Bank recently downgraded its expectations for GDP growth across the world this year. Africa, normally far outpacing more developed regions, is now just a few basis points ahead of global projections. In our cover story this month, the UN’s Carlos Lopes talks about how new challenges such as low commodities prices, renewed conflicts and even climate change are shaping a new chapter in African development—a chapter in which boldness and a direct, structural approach to problems will be vital (pg. 20). There are a lot of other exciting pieces to highlight this month. Dr. Seth Berkely, CEO of Gavi, the global vaccine alliance, spoke to Banker Africa about how even the most basic vaccines can give governments a return on investment of $16 for every dollar spent (pg. 34). Gavi recently issued a Sukuk, its second, to bring in more Islamic finance investors—a trend, it seems, in the development finance world (pg. 37). With that, I’ll let you get to reading. Until next time,
20 IN THE NEWS 6 News analysis: avoiding crisis in Kenya 7
Essential financial news from around the continent
10
Spotlight: Gabon
HAPPENINGS 11 Africa is ‘open for business’
10
African Development Bank President Akinwumi Adesina called on the African private sector to grow
12
Shortlist announced for East Africa Banking Awards 2016 Vote now to recognise the industry leaders in excellence
OPINION 14 Solar power breaks the 10 cent barrier
16
Corporate Kenya can embrace the renewable energy wave, says Ameet Shah, Co-Chairman of Astonfield Renewable Resources
THE MARKETS 16 The future for Barclays Africa
David Hodnett, Deputy CEO, discusses the bank’s strategy after Barclays Plc’s withdrawal
18
Sudan launches online stock market The Khartoum Stock Exchange moves into the digital age
COVER STORY 20 A call for boldness
Carlos Lopes, UN Executive Secretary of UNECA, on investing in Africa and why the narrative has been wrong
24 26
COUNTRY FOCUS: SUDAN 24 New dawn for Sudan?
The Sudanese Government commits to healing internal conflict
26
Bringing social dimensions to business Professor Badr El Din A. Ibrahim illustrates how Sudan adapted social business for Islamic finance
Sarah Owermohle
http://cpifinancial.net/blog/author/78/sarah-owermohle
POLICY SPOTLIGHT 28 A milestone decision, a long road ahead
The ConCourt decision in South Africa may have significant implications for its political future
www.bankerafrica.com
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CONTENTS
ISSUE 33 CASE STUDY 30 Laying tracks for regional trade
30
Inter-regional trade increasingly needs solid infrastructure, writes Karim Sadek, Managing Director at Qalaa Holdings
32
Energy and sustainability in Sierra Leone Balancing renewable and non-renewable energy in a big power gap
TRAILBLAZERS 34 Immunisation for an economic
foundation Dr. Seth Berkley, CEO of Gavi Alliance, discusses the sheer impact of vaccines on country’s economic stability
SECTOR FOCUS: ISLAMIC BANKING 37 Tapping new markets to meet goals
Islamic finance can grow as a route meeting development objectives, says Standard & Poor’s
38
The key to inclusive growth SMEs are vital to growth and Islamic finance can support them, writes Ahmed Osman, Governor of the Central Bank of Djibouti
TECHNOLOGY 40 Say goodbye to payments
34
management in core banking Mick Fennell, Vice President, MEA, Volante Technologies, on why agility is the new standard
42
Finding strength in competition Tammo van Leeuwen, Marketing Strategy Director, CR2, explains how banks can turn financial disruption on its head
Sayantan Banergee, Head of Risk Management MEA for SAS, explains how IFRS 9 will impact financial reporting
46
Why is corruption rising? The answer is not simple, according to a recent UNECA report
OUTLOOK 48 Building back up
48
Libya’s newly named representative Government has just met—what is first on the agenda?
THE VIEW 50 Picture and survey of the month ON THE COVER: Carlos Lopes at the 13th International Economic Forum on Africa (HERVE CORTINAT/OECD
DEVELOPMENT CENTRE/FLICKR).
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Bringing oil producers together
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Cost and earth-saving energy
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NEWS ANALYSIS Customers in Nairobi lined up outside Chase Bank to withdraw money after allegations rose over financial misconduct (CREDIT: SARAH OWERMOHLE/FLICKR)
Avoiding crisis in Kenya A rash of recent bank failures has put customers on edge but could shape a resilient long-term banking sector
W
hen annual reports began to come out last month, there were more than a few surprises. National Bank of Kenya (NBK) report a startling KES 1.2 billion loss in 2015, despite its previous report of record profits for the first nine months of the same. Top executives at the bank have been dismissed pending an internal audit. Less than a week later, Chase Bank published two published two wildly different financial statements. The first statement understated staff loans and advances by KES 8 billion. The later report showed losses of KES 743 million. The subsequent panic amongst Chase Bank clients to withdraw their money before a bank failure led to a liquidity crunch and a swift move by the Central Bank of Kenya (CBK) to put the bank under receivership. In both instances, lending policies have been cited to explain shaky performance (to see our poll on the subject, visit ‘The View’ on pg. 50). However on 7 April, President Uhuru Kenyatta gave a speech during a state visit in Germany in which he commended CBK Governor
6 page 6 News Analysis 033.indd 6
Patrick Njoroge’s efforts to stabilise the banking sector. “I am not worried about the banking sector. I support the Governor on this. He is saying we must strengthen [the sector] and remove the weaknesses,” Kenyatta said. “I believe the governor is doing the best for the sector. The banks must follow the law. The cleaning up does not mean it is falling down. We must strengthen the financial sector as we move forward.” Since Njoroge became Governor in June 2015, two banks have gone into receivership—Chase Bank now and Imperial Bank in the fall—while one, Dubai Bank, was liquidated. The series of bank failures has led several— including Parliamentarians that have demanded an investigation—to wonder openly if past CBK officials such as former Governor Njuguna Ndung’u were to blame. But others have pointed to the CBK’s decision last year to increase its lending rates, causing banks to do the same and spurring a rise in non-performing loans. In the meantime, the Central Bank has tried to calm fears and
even admonished social media users, accusing enthusiastic Tweeters of causing the withdrawal panic that led to Chase’s receivership. “Chase Bank Ltd experienced liquidity difficulties following inaccurate social media reports and the stepping down of two of its directors,” it said in a statement. “Consequently, it was not able to meet its financial obligations on 6 April 2016.” In a ratings review published on 15 April, Standard & Poor’s reaffirmed Kenya’s ‘B+/B’ sovereign ratings and stated that, “recent announcements on the administration of three smaller banking institutions indicate that pressures continue in the system, but we do not view these cases as systemically destabilising.” It did however note that nearly 26 per cent of the banking system’s assets are exposed to the Government, potentially increasing risk. Though Kenya’s growth prospects remain strong, these factors combined with external debt and currency pressures led S&P to keep the country on a negative outlook.
www.bankerafrica.com
26/04/2016 15:57
IN THE NEWS
RATINGS REVIEW BANKS AND BUSINESSES Moody’s Investors Service confirmed the corporate family rating (CFR) and probability of default ratings (PDR) of Gold Fields Limited (Gold Fields) at Ba1 and Ba1-PD, respectively, supported by its strong credit metrics. Moody’s assigned ratings to KCB Bank Kenya and withdrew the deposit ratings of KCB Group following the group’s reorganisation to make KCB Group a non-operating holding company and KCB Kenya a subsidiary.
SOVEREIGNS Standard & Poor’s (S&P) revised down its forecast for South African growth in 2016, stating that both external pressures such as commodities prices and internal factors such as investor bottlenecks and deficits have weighed on the economy. S&P affirmed ‘BBB-/A-3’ long- and short-term foreign and local currency sovereign credit ratings Morocco’s ratings with stable outlook, stating that they are supported by political and social stability, economic growth prospects, and a moderate government debt burden. S&P affirmed the ‘B/B’ ratings of Cameroon, citing its strong economic growth despite oil prices’ drop and security threats, but continually low per capita income and high government debt as supporting the rating.
ON THE RECORD
We want to be a first-rate Bank that delivers impact at scale in Africa. We want to be that Bank of reference, that Bank of choice…I don’t want a Bank that is an elephant. I want a Bank that is like a lion. — African Development Bank President Akinwumi Adesina on his vision for the bank’s next 10 years
A QUICK WORD Lockton opens new office in Casablanca Financial City Lockton, a privately-held international insurance broker, is coming to Morocco. QG Africa Hotel LP acquires InterContinental Hotel in Lusaka Private equity fund capitalises on emerging opportunities in hospitality in Sub Saharan Africa. AfDB President pledged to increase financial support to Mozambique The President of the African Development Bank Group visited Maputo, Mozambique on 5 April. The Dubai Show to debut in South Africa to attract investment Sumansa Exhibitions launched the showed, planned for Johannesburg in November, to attract investors to Dubai.
S&P raised Mozambique’s Foreign Currency Sovereign ratings to ‘B-/B’ with a stable outlook following a positive debt restructuring for stateowned EMATUM that S&P said has helped the Mozambican government improve its near-term debt service payments. Moody’s meanwhile downgraded Mozambique’s issue rating to Caa1, outlook stable, due to the same restructuring. In Moody’s view, it was a distressed exchange and therefore a default on government-guaranteed debt, signaling what it said could be diminished willingness on the part of the government to honour future debt obligations.
Representing Sumansa Exhibitions, Sajid Al Ali, Director, and Sultan Al Suwaidi, Partner, discuss their vision for the Johannesburg event.
For these stories and more, visit www.bankerafrica.com
www.bankerafrica.com
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IN THE NEWS
ICD and China-Africa Development Fund partner on investment
A technology zone takes shape in Egypt
A
memorandum of understanding (MoU) was signed between the Islamic Corporation for the Development of the Private Sector (ICD) and China-Africa Development Fund (CADFund), a Beijing-based private equity firm focusing on Africa. The two on co-financing and co-investing in improved trade in 19 African countries, as well as research programmes and SME support in particular. “In recent years, although Africa’s economy has grown rapidly, questions are sometimes raised regarding the sustainability of this growth. I believe this MoU has an important role to play. It will not only help stimulate business and investment in Africa moving forward, but it will also contribute to the sustainable economic development of the selected African countries by expanding the private sector and most importantly, creating quality jobs,” Shi Jiyang, CEO and President of CADFund, said.
African Development Bank Group announces three executive appointments The African Development Bank Group (AfDB) announced the appointment of Dr. Frannie Leautier as Senior Vice-President; Dr. Alberic Kacou, as Vice-President Human Resources and Corporate Services; and David Ssegawa, as Director of the Corporate Human Resources Department, all effective in May 2016. “I am delighted that Dr. Frannie Leautier, Dr. Alberic Kacou and David Ssegewa will be joining the Bank,” President Dr. Akinwumi Adesina said of the appointments. “As one of Africa’s top development experts, Dr. Leautier will help lead our efforts on improving the overall operational effectiveness of the Bank to drive greater developmental impacts. Dr. Kacou’s ability to drive institutional reforms and organisational change will be critical in the implementation of the Bank’s organisational reforms to deliver greater developmental impacts and effectiveness. David Ssegewa will join our leadership team as we build a world-class work force and drive a new culture of enhanced organisational and staff performance to deliver greater developmental impacts all across Africa.”
New CEO of Standard Bank Offshore Group appointed Standard Bank Group has appointed Will Thorp as Chief Executive Officer of its Offshore Group, subject to regulatory approval. Thorp will lead the Bank’s offshore businesses in Jersey, Isle of Man and Mauritius, as well as distribution and support teams in London and Johannesburg.
8 page 7-9 In the News 033.indd 8
Borg El-Arab airport (pictured) is located near the developing ICT zone to link up businesses (CREDIT: YARLANDER/SHUTTERSTOCK).
Egypt’s Communications and Information Technology Minister, Engineer Yasser El-Kady, recently visited an ongoing technology zone project in Alexandria, expected to start operations in 2016. The zone, named Borg El-Arab, is one of two that President Abdel-Fattah El-Sisi wants opened within a year to build on Egypt’s ICT sector; it is also one of seven total that the President and the Ministry want to open throughout Egypt over the course of the next few years. The country’s push towards ICT development is part of its national development programme. Egypt’s ICT aspirations were supported during a recent CIO Summit held in Cairo under Minister El-Kady’s patronage, at which the International Data Corporation (IDC) announced the opening of its dedicated new office in Cairo’s Smart Village. The technology research and consulting firm said that a number of analysts and consultants are already on board to join in the freezone.
IFC, EIB and Ecobank partner on SME finance The International Finance Corporation (IFC), the European Investment Bank (EIB) and Ecobank Transnational Incorporated (ETI), signed a risksharing agreement meant to fill a gap in SME financing across Sub Saharan Africa. EIB and the IFC were already working together on the IFC’s Global SME Finance Facility, but will now join the risk-sharing facility that the Corporation first launched with Ecobank in May 2015. EIB and IFC will share 25 per cent of the risk in the $110 million facility, alongside ETI.
www.bankerafrica.com
26/04/2016 16:01
Ford Motor Company invests ZAR 2.5 billion into South Africa Ford Motor Company of Southern Africa announced a ZAR 2.5 billion investment to expand operations in South Africa at its Silverton Assembly Plant, in Pretoria. South African Trade and Industry Minister Rob Davies welcomed the announcement, saying that the investment not The factory is expected to provide jobs and much-needed only shows confidence investment into the economy (CREDIT: VLADIMIR in South Africa but also SALMAN/SHUTTERSTOCK). shows the significance of the Africa Growth and Opportunity Act’s (AGOA) two-way benefits. “The automotive industry is of significant importance to South Africa. To date we have invested more than ZAR 25 billion in the motoring industry and are positive that through this investment we will see more and more vehicles manufactured locally,” Davies said. The Minister revealed that the Department of Trade and Industry had awarded Ford Motor Company of Southern Africa with a ZAR 699 million incentive through the Automotive Production and Development Programme (APDP) for their latest investment expansion.
Dodsal Group strikes $8 billion Tanzanian gas deposits
The Dodsal Group struck Tanzania’s biggest land gas deposit.
The Dodsal Group, a Dubai-based business conglomerate, struck an expansive sweep of over 2.7 trillion cubic feet (TCF) of natural gas, the biggest onshore discovery in Tanzania. Having secured oil and gas concessions from the government following a production sharing agreement signed in 2007, the Dodsal Group said that it is currently undertaking studies for prospective gas resources to be enhanced further. The Group has already invested $200 million to date, and plans to invest another $300 million in Tanzania over the next 24 months to support its exploration and production activities, including implementation of an early production system.
Orange invests in Africa Internet Group
O
range announces the acquisition of a EUR 75 million equity interest in Africa Internet Group (AIG). Orange joins AXA, Goldman Sachs and longstanding investors MTN Group, Millicom and Rocket Internet. In a statement, Orange said that the investment will be accompanied by a series of strategic partnerships between the subsidiaries of the two groups, and that Orange will help Jumia, one of AIG’s largest websites, as well as its other sites, to accelerate their growth. Since Jumia’s creation in Nigeria in 2012, Africa Internet Group has grown to 10 online consumer businesses operating in 23 African countries, enabling more than 50,000 local and international companies to do business with African consumers. “With this strategic investment, Orange now has the capacity to play a leading role in the fast-growing e-commerce market in Africa,” Stéphane Richard, Chairman and CEO of Orange, said.
Africa Finance Corporation reports 25 per cent asset growth in 2015 Despite what the Corporation said was a difficult operating environment in the year, AFC reported 25 per cent growth in its balance sheet, with total assets in excess of $3.2 billion, net interest income increased by 39 per cent to $108.4 million with net interest margins growing to 4.4 per cent, a seven per cent improvement over the prior year, as the Corporation continues to lower its borrowing costs. Fees, commissions and other income however declined by 85 per cent largely due to one-off revenues of $46 million recorded in 2014.
www.bankerafrica.com
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9 26/04/2016 16:01
NEWS SPOTLIGHT GABON
Gabon seeks to diversify its economy as oil revenues decline An oil rig outside Libreville is a sign of better times in oil prices (CREDIT: ANTON IVANOV/SHUTTERSTOCK).
Hit hard by the recent oil price decline, Gabon can build resilience and revive growth by continuing to diversify its economy, says the IMF. In its annual assessment of the economy, the IMF also welcomed the government’s plan to improve the level and quality of infrastructure, and raise the quality of human capital—the key constraints to economic growth. Montfort Mlachila, IMF Mission Chief for Gabon, said that economic growth is expected to decline to 3.2 per cent in 2016 from about four per cent the year prior. He said that the main priorities now are raising growth, diversifying the economy and safeguarding long-term fiscal stability. “First, [the Government] needs to raise additional revenue outside of the oil sector, notably, for example, by reducing the extent of tax exemptions; and then on the spending side the government can take a number of measures to control better the growth of the wage bill,” Mlachila said. “Second, it needs to reprioritise capital spending to focus on projects that have the highest benefits or the highest economic returns so that it can live within its means. So, those are the key areas that the government can adapt to the fall in the commodity prices.” The issue, he added, would be to adjust spending in line with available revenue, especially considering non-oil sources; in 2014, oil contributed to about 45 per cent of Government revenue and 85 per cent of exports.
10
AFC invests $140 million in Gabon’s Special Economic Zone
A
frica Finance Corporation (AFC) announced plans invest up to $140 million in the Gabon Special Economic Zone (GSEZ), created in 2010 as a joint venture between the Government and Olam International.AFC’s investment will go towards several projects, including a new mineral terminal, a general logistics terminal, as well as other special infrastructure projects. GSEZ also owns and operates the Nkok Special Economic Zone and the Port Gentil special economic zone, which is in early development. Ali Bongo Ondimba, President of the Republic of Gabon, said, “I am pleased to be entering into this agreement with Africa Finance Corporation. It will allow us to develop GSEZ’s existing infrastructure and implement a number of new projects. Our relationships with influential private sector institutions are crucial to the successful implementation of large scale infrastructure projects. Ultimately these projects will drive Gabon’s economic development and improve the lives of Gabonese citizens.” Andrew Alli, President & CEO of Africa Finance Corporation said, “We are delighted to be able to build on our well-established partnerships with the Republic of Gabon and with Olam by making this investment, which will help to accelerate the development of these infrastructure assets and diversify the economy of Gabon.” The AFC investment will help expand logistics for vital trade in Gabon (CREDIT: ANTON IVANOV/ SHUTTERSTOCK).
Gabon expresses interest in re-joining OPEC Gabon has submitted a letter to the Organization of the Petroleum Exporting Countries (OPEC) to rejoin the group after leaving in 1995. The country had been a member of OPEC for 20 years at that point, but left over demands on its annual contribution. If it rejoined, it would replace Ecuador as the smallest oil producer in the organisation. It would also follow Indonesia, which left OPEC in 2008 but returned last year. OPEC has recently begun taking steps towards a price freeze to recover some of the price drop.
www.bankerafrica.com
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21/04/2016 18:39
HAPPENINGS
Africa is ‘open for business’ African Development Bank President Akinwumi Adesina called on the African private sector to grow
Akinwumi Adesina, President of the AfDB, called on the private sector to lead in production and diversification (CREDIT: AFRICAN CEO FORUM/FLICKR).
A
frica’s private sector will continue to lead the continent towards economic transformation, African Development Bank President Akinwumi Adesina said at the launch of the fourth Africa CEO Forum in Abidjan. “The ‘Africa rising’ story remains strong. Yes, African economies face economic headwinds from the significant decline in the price of commodities ... but African economies remain resilient. While the global economy is projected… to grow at three per cent this year, Africa is projected to grow at 4.4 per cent in 2016, and to accelerate…to five per cent in 2017,” Adesina said. Welcoming the President and Prime Minister of Côte d’Ivoire and the Deputy President of Kenya, Adesina described government leaders as “the CEOs of their national corporations”. He set out a vision of government objectives to foster the private sector, including ensuring macroeconomic stabilisation and fiscal consolidation, broadening the tax base, and deepening domestic capital markets. In addition, he said, governments need
to continue to address infrastructure deficits, break down barriers to regional integration, and fast-track key reforms. He described efforts to deepen financial integration and increase liquidity, citing an AfDB project to link four African stock exchanges, and a joint venture with Bloomberg to facilitate the issuance of sovereign and corporate bonds on African markets. He pointed to a growth in remittances and a rise in sovereign wealth funds in Africa, and said, “With all these resources, Africa can finance its own development, and doing so enables it to decide its own direction and pace of growth. “The formula for the wealth of nations is clear,” he said. “Rich nations add value by transforming raw materials into finished goods, while poor nations merely export their raw natural commodities. Africa only accounts for 1.9 per cent of global added value in manufacturing.” Adesina also called on the private sector to lead in doubling efforts to transform African commodities locally, and in diversifying African economies,
particularly into areas like services and tourism. The private sector accounts for 80 per cent of total production, 90 per cent of employment, and two-thirds of total investments. “In the face of global economic challenges, it is those African countries with diversified economies that are succeeding in weathering the economic storm. While the current situation is challenging, it also presents great opportunity, especially for resource-rich countries, to diversify their economies away from the export of raw commodities…Now is the time, the time for Africa to move up the value chain,” he said. Alassane Ouattara, President of the Republic of Côte d’Ivoire, also stressed Africa’s resilience, and its need to add economic value. “It is you—it is the private sector—which will do the most to create jobs for the young people of this continent,” he said, pointing to a ‘winwin partnership’ if the public and private sectors work together. He called on the private sector to step up and fund Africa’s growth, and to make concrete proposals within the Africa CEO Forum.
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11 24/04/2016 08:44
HAPPENINGS
Shortlist announced for East Africa Banking Awards 2016 Vote now to recognise the industry leaders in excellence
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panel of judges has just revealed the shortlist for the 4th annual Banker Africa East Africa Banking Awards, naming dozens of institutions across more than 30 key regional and country-specific categories. “Against a backdrop of turmoil in the Kenyan banking sector, there can be no better time to identify those banks that are getting things right! Customers, both corporate and individual, need to have confidence in their banks. Demonstrating the quality that is available to them will help restore that confidence,” said Robin Amlôt, Chief Executive Officer of CPI Financial, publisher of Banker Africa. The winners of the third East African Banking Awards will be announced in a ceremony at the Crown Plaza, Upper Hill in Nairobi, Kenya, on 24 May. For the first time in the Awards’ history, the winners will include the ‘CEO of the Year’ and the ‘Lifetime Achievement Award’. “East Africa is under the spotlight at the moment and it is important for investors and customers to know which banks are the best for their money,” Georgina Enzer, Managing Editor of CPI Financial, commented. The annual Banker Africa Awards are continent-wide programmes open to all banks and financial institutions in Africa. The aim of the Banker Africa Awards, broken down by four individual regions, is to recognise outstanding performance and excellence in the financial services industry. “The Banker Africa East Africa Awards are designed to reward excellence in financial services, identifying the key players working to help create a prosperous diversified future for all of the region’s people, businesses and economies,” said Robin Amlôt.
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PERSONAL ACCOLADES: • CEO of the year • Lifetime achievement award
KENYA COUNTRY AWARDS: Best Retail Bank – Kenya:
Best Investment Bank – Kenya:
• KCB Capital • CBA Capital • Faida Investment Bank • Dyer & Blair Investment Bank • CFC Stanbic • African Alliance Best SME Bank – Kenya:
• CBA (Commercial Bank of Africa) • KCB (Kenya Commercial Bank) • Co-Operative Bank of Kenya • Diamond Trust Bank • NIC Bank • Equity Bank
• Co-operative Bank of Kenya • ABC Bank (African Banking Corporation) • CBA (Commercial Bank of Africa) • KCB (Kenya Commercial Bank) • Family Bank Kenya • Consolidated Bank of Kenya Ltd
Best Corporate Bank – Kenya:
Best Online Platform – Kenya:
• CFC Stanbic • Standard Chartered Kenya • Barclays Bank Kenya • Co-Operative Bank of Kenya • I&M Bank • Diamond Trust Bank Best Commercial Bank – Kenya:
• KCB (Kenya Commercial Bank) • Equity Bank • Diamond Trust Bank • Barclays Bank Kenya • Standard Chartered Kenya • NIC Bank
• CBA (Commercial Bank of Africa) • Equity Bank • Sidian Bank • NIC Bank • Diamond Trust Bank • Jami Bora Bank Best Microfinance Bank – Kenya:
• SMEP MFB Ltd • KWFT Bank • Rafiki Microfinance Bank • Century Microfinance Bank • Faulu Kenya
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Best Customer Service – Kenya:
• Diamond Trust Bank • NIC Bank • I&M Bank • Victoria Commercial Bank • Co-operative Bank Kenya • Standard Chartered Kenya Best Emerging Bank – Kenya:
• Sidian Bank • FCB (First Community Bank) Ltd • Victoria Commercial Bank • Jami Bora Bank • Fidelity Commercial Bank
TANZANIA COUNTRY AWARDS: Best Retail Bank – Tanzania:
• NMB (National Microfinance Bank) • CRDB • NBC (National Bank of Commerce) • Standard Chartered Tanzania • Exim Bank Best Corporate Bank – Tanzania:
• Citibank • CRDB • Barclays Bank Tanzania • Stanbic Bank Tanzania • Bank M
Best Commercial Bank – Tanzania:
• BancABC Tanzania • CRDB • NMB (National Microfinance Bank) • Exim Bank • Barclays Bank Tanzania Best Investment Bank – Tanzania:
• NBC (National Bank of Commerce) • Stanbic Bank Tanzania • Citibank • Bank M • Barclays Bank Tanzania Best SME Bank – Tanzania:
• NMB (National Microfinance Bank) • Bank of Africa Tanzania • Ecobank Tanzania • ACB (Akiba Commercial Bank) • DCB Commercial Bank Best Microfinance Bank – Tanzania:
• NMB (National Microfinance Bank) • Ecobank Tanzania • Exim Bank • DCB Commercial Bank • FINCA Microfinance Bank • ACB (Akiba Commercial Bank) Best Customer Service – Tanzania:
• Bank M • Standard Chartered Tanzania • Ecobank Tanzania • Exim Bank • NBC (National Bank of Commerce) Best Emerging Bank – Tanzania:
• Amana Bank • Ecobank Tanzania
• Exim Bank • DCB Commercial Bank • Bank M • BancABC Tanzania
OTHER COUNTRY SPECIFIC AWARDS: Best Retail Bank – Uganda:
• Stanbic Bank Uganda • Finance Trust Bank • Barclays Bank Uganda • DFCU • Crane Bank
Best Corporate Bank – Uganda:
• Stanbic Bank Uganda • ABC Capital Bank • Housing Finance Bank • Orient Bank • Standard Chartered Uganda Best Bank in Sudan:
• Bank of Khartoum • Faisal Islamic Bank Sudan • Blue Nile Mashreg • Al Baraka Sudan • Al Salam Bank Sudan Best Bank in Rwanda:
• Bank of Kigali • Ecobank Rwanda • Banque Populaires du Rwanda • I&M Bank Rwanda • Access Bank Rwanda Best Bank in Ethiopia:
• Commercial Bank of Ethiopia • NIB International Bank • Wegagen Bank • Zemen Bank • Oromia International Bank • Dashen Bank
Best Investment Bank – East Africa:
Best Corporate Governance Bank – East Africa:
• Barclays • Standard Chartered • African Alliance • Citibank • Stanbic (Standard Bank)
Most Socially Responsible Bank – East Africa:
• Bank of Kigali • KCB (KCB Foundation) • Crane Bank - partnership with The Ruparelia Foundation • Co-Operative Bank Foundation Kenya Best SME Bank – East Africa:
• NMB (National Microfinance Bank) • KCB (Kenya Commercial Bank) • CBA (Commercial Bank of Africa) • CRDB • NBC (National Bank of Commerce) Best Customer Service – East Africa:
• Equity Bank • Diamond Trust Bank • CRDB • I&M Bank • NIC Bank
Best Online Platform – East Africa:
• Standard Chartered Tanzania • NIC Bank • Wegagen Bank • Diamond Trust Bank • UBA Bank Best Islamic Bank – East Africa:
• Al Salam Bank Sudan • Gulf African Bank • Bank of Khartoum • First Community Bank • Amana Bank
TECHNOLOGY AWARDS: Best Core Banking System – East Africa
• Oracle • Temenos • Edgeverve Finacle • Misys
Most Innovative Bank – East Africa:
• Equity Bank • NIC Bank • Wegagen Bank • Diamond Trust Bank • Exim Bank
Most Innovative Technology Provider – East Africa:
Best Mobile Banking Service – East Africa:
• CBA - M-Shwari • Equity Bank - Equitel • KCB - M-Benki • NIC - NOW • DTB – MOBILE
• Victoria Commercial Bank • Amana Bank • Exim Bank • First Community Bank • I&M Bank
• Entersekt • eBankIT • CR2 • Edgeverve
Best Payment Solution Provider – East Africa:
• BPC Banking Technologies • CR2 • Ingenico • ACI Worldwide
EAST AFRICA REGIONAL AWARDS: Best Retail Bank – East Africa:
• Equity Bank • KCB (Kenya Commercial Bank) • CRDB • Diamond Trust Bank • UBA Bank • CBA (Commercial Bank of Africa)
Those institutions short-listed are not necessarily the largest. The Awards are designed to reward innovation and the ability to gain market share, not simple size. As always the winners will be selected by the registered readers of CPI Financial products and services—in other words, your peers in the financial services industry.
Best Corporate Bank – East Africa:
• Barclays • Standard Chartered • Stanbic (Standard Bank) • Bank M • Commercial Bank of Ethiopia • Citibank Best Commercial Bank – East Africa:
• Equity Bank • CBA (Commercial Bank of Africa) • CRDB • KCB (Kenya Commercial Bank) • Diamond Trust Bank • Stanbic (Standard Bank)
POLLS OPEN NOW Voting for the Banker Africa East Africa Banking Awards commenced on our website www.cpifinancial.net on 14 April 2016 and will run to 10 May 2016. Each shortlisted entry will be automatically linked to the institution’s own homepage online. In addition you may wish to read supporting material for the specific Award where provided by the shortlisted institutions before casting your votes. Once voting closes, the results will be tallied and revealed in the subsequent edition of Banker Africa.
www.bankerafrica.com
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OPINION Solar power does not make sense everywhere, but the incentives are big in Kenya (CREDIT: VACLAV VOLRAB/SHUTTERSTOCK)
Solar power breaks the 10 cent barrier From solar friendly policies to weather, corporate Kenya can embrace the renewable energy wave, says Ameet Shah, Co-Chairman of Astonfield Renewable Resources
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ike the four-minute mile and the two-hour marathon, barriers are there to be broken. Solar power is now setting new standards for energy costs in corporate Kenya. The standard cost of energy in Kenya is high. The majority of corporate Kenya buys electricity at a unit price, or kilowatt hour, (KwH) of between $0.12-15. This commonly accounts for 20 per cent of commercial operating costs. But thanks to the convergence of three factors, solar power has now
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broken the magical $0.10 per KwH barrier and provides a huge boost to the manufacturing sector, which means the sector can attain improvements in net operating margins exceeding two to three per cent. The first cost-saving factor is obvious. Unlike Europe, where renewable energy simply can’t deliver economic sense, in Kenya there is an ambient climate totally suited to renewable energy, and solar in particular. On at least 300 days of the year, we open the curtains in the morning to a day of 10
hours of sunshine. On at least 330 days per year, we have sufficient sunlight to produce power. Quite literally, when the sun shines, you can save money. Secondly, Kenya has received a major boost from the Government through regulatory and fiscal policies that deliberately favour the adoption of renewable energy. Under the fine points of the policies, there is no valueadded tax (VAT) on the import of solar power equipment and there are no restrictions or penalties on corporate adoption of captive solar power
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plants (i.e. totally independent power plants singularly devoted to a specific premises or property). Furthermore, the Government has created an omnibus tax scheme, called the Investment Deduction Allowance, designed specifically to encourage manufacturing through the offer of major tax breaks for Kenyan corporates. The IDA can also be applied to captive solar power plants. Thirdly, there is a major boost from Europe, who, in line with EU Climate Change policy, are channelling huge bilateral credit lines into Kenyan banks specifically for renewable energy projects. Europe’s Development Finance Institutions (DFIs) are diverting huge sums away from Europe, where renewable energy makes little financial sense, to countries like Kenya, where both energy consumption is growing exponentially and renewable energy makes perfect financial sense. DFIs like Agence Francaise Developpement (AFD) and the other private institutions like the Global Climate Partnership Fund are major providers of credit facilities totalling over $100 million direct to Kenyan banks to be lent at concessionary rates of 3.5 to 6.5 per cent over a tenor of seven to 10 years. That’s enough money to generate 60-70 MW of power nationally—approximately five per cent of Kenya’s current installed power supply. These lines of credit have been around for a couple of years but they have been under-utilised because renewable energy projects have largely either been too big or too small for banks to consider lending. Astonfield Solar and Chase Bank Kenya Ltd see things differently, and through the proper packaging of fully-financed captive solar plants, providing corporate customers with cost per KwH in the single digits, there is a direct hit on the bank’s lending
Ameet Shah, Co-Chairman of Astonfield Renewable Resources.
Kenya has received a major boost from the Government through regulatory and fiscal policies that deliberately favour the adoption of renewable energy. — Ameet Shah
‘sweet spot’ of between $250,000 and $5 millon. Banks mostly desire to lend sums in that range and mostly to corporate organs. Suddenly, the stars have aligned: solar power is desirable, solar power is reliable, applicable and accessible through 100 per cent asset financed loans or leasing finance. With 100 per cent low cost loans, Kenyan corporates don’t spend anything to install a captive solar power plant on their property; and with unit energy costs in single digits, corporates save enough money on their electricity bills to simultaneously pay the bank loan interest and accrue additional savings to cash flow from operations i.e. have money left over to invest in other parts of the business. The value proposition is clear and compelling. We estimate that where solar energy replaces 20-30 per cent of GRID energy purchase, corporates in the manufacturing sector can improve operating margins by 1-300 basis points, leading to a more competitive position for our industry. In light of these opportunities and changing dynamics, Astonfield Solar and Chase Bank have combined to package renewable energy finance deals for Two Rivers Mall, Bidco, Ashut Engineering and others. Corporate Kenya is slowly waking up and feeling the sunshine! DFI credit lines are there to help develop our power generation so that industry can flourish and our economy can continue to grow sustainably. Next time you open the curtains and see the sun, you too could be saving money. The astute amongst you may have spotted the mistake in the opening line. The two-hour marathon has yet to be achieved. But with runners like Dennis Kipruto pushing hard, that barrier will be broken very soon, and once again it will undoubtedly be a Kenyan who leads the way.
www.bankerafrica.com
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15 24/04/2016 08:51
THE MARKETS
The future for Barclays Africa David Hodnett, Barclays Africa Deputy CEO and Chief Finance Director, shares the bank’s growth plans in the wake of Barclays Plc’s decisions to withdraw
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rom where you stand n o w, w h a t i s t h e future of Barclays Africa Group?
Barclays Africa is strong and growing— our revenue increased by six per cent last year and headline earnings grew 10 per cent. We have an enviable return on equity of 17 per cent, which is a good measure of the strength of a business. Our financial strength is matched by our long legacy on the continent, and depth of local knowledge and relationships. Our roots are deep in Africa, reaching back more than a century in some countries. We have more than ZAR 1 trillion in assets and we have extensive reach across the continent, where we serve more than 12 million customers in 12 countries and we employ about 42,000 people. We clearly have an excellent base for a sustainable and growing business. We continue to invest in the continent, as is evidenced by our 1 March announcement that we will invest ZAR 1.4 billion in education projects in Africa over the next three years.
What are your thoughts on Barclays Plc’s assertion that regulatory challenges led to its exit decision? The driving decision behind the selldown is the regulatory burden that Barclays Plc faces in the UK, and is not a reflection of the strength of Barclays Africa or of the environment in which we operate.
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What is an ideal outcome for you in Barclays Plc’s exit and Barclays Africa Group’s future? It is not possible at this early stage to say what the ideal outcome will be—there are several possible positive outcomes. There has been no lack of interest from potential buyers, and we will be working closely with Barclays and with regulators, including the South African Reserve Bank, to evaluate options that are in the best interests of our stakeholders. It is important to note that a change in Barclays Plc’s majority shareholding in Barclays Africa has no direct bearing on Barclays Africa’s group structure. We continue to own majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Barclays Bank Tanzania and National Bank of Commerce), Uganda and Zambia. We also have representative offices in Namibia and Nigeria (licence applications submitted) as well as insurance operations in Botswana, Mozambique, South Africa and Zambia. Our ambition to be Africa’s leading bank remains unchanged.
How will Barclays Plc’s decision to offload its shares in Africa gradually, over the course of two to three years, shape the Group’s strategy? We remain focused on the strategy that we implemented following the creation of
David Hodnett
The driving decision behind the sell-down is the regulatory burden that Barclays Plc faces in the UK, and is not a reflection of the strength of Barclays Africa. — David Hodnett
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GROUP STRUCTURE
Barclays Bank Plc 62.3%
Other public shareholders 37.7%
BARCLAYS AFRICA GROUP LIMITED ABSA Bank Limited 67.8%
ABSA Financial Services Limited 100%
Barclays Africa Limited 100%
Barclays Bank of Botswana Limited 67.8%
Barclays Bank of Ghana Limited 100%
Barclays Bank Tanzania Limited 100%
Barclays Bank of Kenya Limited 68.5%
Barclays Bank of Mauritius Limited 100%
Barclays Bank of Uganda Limited 100%
Barclays Bank Mozambique SA 98.1%
Barclays Bank (Seychelles) Limited 99.8%
Barclays Bank Zambia Plc 100%
National Bank of Commerce Limited 65.9%
BARO 100%
Other Legal entities1 Barclays Africa Group continues to own majority stakes in the Barclays banks across the region and this structure will not change, says Hodnett.
Barclays Africa and which is working, as was demonstrated by the solid financial results we reported on 1 March. With this strategy in place, we have been able to achieve several milestones. For instance, our return on equity increased to 17 per cent—our highest return since 2008. Our business in South Africa, our largest market, is already at 18 per cent and we see further scope to improve our returns from our businesses outside of South Africa. Our share of revenue from African operations outside of South Africa grew to 21 per cent. We are now in the top three by revenue in four of our five largest markets, South Africa, Botswana, Ghana and Zambia. Furthermore, our cost-to-income ratio decreased to 56 per cent reflecting improved efficiency of our business and strategic cost reduction programmes.
How has the economic environment in South Africa impacted the Group, and possibly Barclays Plc’s decision? What is your outlook for the South African economy and banking environment in 2016? Barclays Plc was clear that the decision behind its sell-down was not related to South Africa’s economic environment but rather due to the regulatory burden that Barclays Plc faces in the UK. There are short-term economic challenges in South Africa, where we expect gross domestic product [GDP] growth of 0.9 per cent this year. Many countries across Africa are facing a similar set of economic factors. We anticipate these economic conditions across the continent are likely to persist into 2017. However, we are optimistic about the long-term prognosis, and despite the seriousness
of the current environment, we believe that the structural growth case for Africa is likely to be more resilient than the current cyclical challenges we are facing.
Within South Africa itself, what do you think needs to be done on the regulatory side to improve investor sentiment and the banking environment? Broadly, it is encouraging to see closer cooperation between government and business in tackling economic challenges. There are a number of regulatory developments, including the implementation of Twin Peaks [a programme by the Reserve Bank and the Financial Services Board to both increase consumer protection and sector stability]. Fortunately, in South Africa, we have a world-class regulator who has consistently demonstrated the ability to implement required change in a responsible manner.
What do you see as the biggest growth opportunities for South African banking institutions? As outlined in our strategy and evidenced in our results, Barclays Africa has a number of identified growth opportunities across the continent including corporate banking, the markets business outside of South Africa and bancassurance. More generally, the financial services providers that will grow will be those that are able to create solutions that will make banking simpler for customers across the board, from people in rural areas to corporate clients. These solutions are often technology-based and often the best way to develop such solutions is through partnership with innovators and entrepreneurs. To foster these partnerships, we have put in place several initiatives, including the opening of our ‘Rise’ innovation centre in Cape Town late last year.
www.bankerafrica.com
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THE MARKETS
Sudan launches online stock market With support of the AfDB, the Khartoum Stock Exchange moves into the digital age The AfDB and Sudanese authorities hope that e-trading will accelerate the stock market’s growth. (CREDIT: NAIYANAB/SHUTTERSTOCK)
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he Government of Sudan inaugurated an online trading system of its stock market, the Khartoum Stock Exchange (KSE) on 24 March 2016 in the country’s capital, Khartoum. The African Development Bank (AfDB) called the online exchange, financed as part of its Public Financial and Macroeconomic Management (PFM) project, a landmark development in the Sudan’s financial history. The Bank’s funding for the project currently amounts to $34.8 million. It added that this support is part of the Bank’s mandate, under its Transitional Support Facility (TSF), to strengthen Sudan’s financial governance and accountability. Authorities are optimistic that the e-trading system will be instrumental in promoting the exchange’s development. The PFM project seeks to create a platform for establishing electronic public financial systems, which the AfDB hopes will ultimately form basis for the
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transition of electronic governance and administration of public resources. Other complementary systems that are being developed by the PFM include an Integrated Financial Management and Information System (IFMIS). This will integrate Sudan’s public financial management systems with other systems in line ministries, through a customised IT infrastructure that will enhance electronic transactions, information flow and interaction across ministries. Abdalla Ibrahim, Sudan’s Undersecretary of Planning in the Ministry of Finance and Economic Planning, released a statement commending the AfDB for financing this initiative. He noted that it has laid the foundation for his country to align itself with the global financial and electronic trading systems. The Resident Representative of the AfDB in Sudan, Abdul Kamara, commented that electronic trade is growing in importance.
He stressed that the Bank’s support emanates from the considerable advantages of trading electronically, which reduces the risk associated with physical cash transactions, lowers transaction costs and saves time. Kamara also noted the potential of e-trading to improve transparency, flow of information and enhance domestic resource mobilisation such as Sukuk bonds on which Sudan heavily depends for financing infrastructure and service delivery. He assured the government of the Bank’s continued assistance in the area of public financial management and enhancing accountability in the use of public resources. Sudan’s Technical Committee of the Economic Development Sector also reviewed, during an early April 2016 meeting, the Khartoum Stock Exchange Bill for 2016 and the law regulating the authority of capital markets for the year 2016, recommending be submitted to the sector for approval.
www.bankerafrica.com
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COVER STORY
A call for boldness Afro-Arab ties have forged foreign investment links, but diversification, infrastructure development and security improvements are next up in transforming into highincome countries, says Carlos Lopes, UN Executive Secretary of the Economic Commission for Africa
We need to deal with perceptions up front, including conflicts and exclusion, Carlos Lopes said (CREDIT: DAVID CARILLET/SHUTTERSTOCK).
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arlos Lopes, Executive Secretary of the Economic Commission for Africa at the level of United Nations (UN) Under Secretary General, said that his message is simple—come invest in Africa. Lopes recently appeared in Dubai, the UAE, at the Annual Investment Meeting (AIM), under the meeting’s theme of “The New World of FDI, Key Features, and Best Practices”, to speak about the potential in Africa and highlight the building relationship with the UAE. The need for structural transformation in Africa is well-known, Lopes said, but the narrative of Africa to outside investors needs to change. “A period of good economic performance in the continent had captured and dominated the Africa rising story line. Now a combination of factors such as renewed conflict, drops
Given the high degree of sophistication in the finance and banking market in GCC countries…and the rapid development of the banking sector in Africa, on the other hand, the banking sector seems like a natural area for investments. –C arlos Lopes, UN Executive Secretary of the Economic Commission for Africa
While the drop in oil prices has not caused crisis in Africa, it is an important reminder to diversify, says Carlos Lopes (CREDIT: THOMAS ECKE/OECD DEVELOPMENT CENTRE/FLICKR).
in commodities demand and prices, including oil, high currency volatility, rising interest rates, to the disastrous effects of climate change are once again dominating the African storyline. This is despite the fact that the continent’s economic prospects are still there and intact,” he said, noting that while there has been a global slump, African countries have registered strong growth and widely low debt levels compared to the rest of the world. “Factors shifting the mainstream narrative back to the past are largely attributable to the fragility of perception and the lack of deeper structural transformation [such as] the need to combine higher agricultural productivity, adding value to natural resources, modernised services associated with urban and youth bulges, powered by strong industrialisation. So it’s important that we get the story straight,” he said. “Part of the solution is to deal with die-hard perceptions upfront as African priorities; for instance to deal with the causes of conflict, or everybody will pay the price for the fragility perception. The call is for boldness, establishing a common security framework and to squarely accept the challenges of exclusion and managing diversity.” In fact, Lopes argued that African economies “extremely resilient” in the wake of the drop in commodities prices, though that does not mean they should rest on the current structure. More than 80 per cent of African exports are still linked to commodities, a fact Lopes said African policy makers have in mind and looking to change. “In order to move up the value chain and generate higher incomes and wealth, African countries have no cont. overleaf
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COVER STORY
cont. from page 29
option but to diversify—and African leaders are well aware of this. Some success has already been made, in particular in the services sector, which is now Africa’s largest sector in terms of FDI stock. Other non-commodities sectors that have seen inflows of FDI in Africa include tourism and construction,” he said. “While the drop in commodity prices has not caused an economic crisis in Africa, we should see it as a reminder of the importance of reducing the reliance on commodity exports and boosting industrialisation, diversification and economic transformation on the continent—the only way to ensure that value and employment is created in Africa,” he added.
CAPITALISING ON AFRO-ARAB CONNECTIONS Lopes stated that there is no doubt that the UAE is an important trading partner of Africa. Total merchandise trade between Africa and the UAE has increased from $5.6 billion in 2005 to $17.5 billion in 2014, the latest year available—a more than a threefold increase within a decade. During the same time, the share of the UAE in Africa’s total trade with the world increased from one per cent in 2005 to 1.5 per cent in 2014. “The future looks bright, we can expect these trends to continue, given that businesses and investors based in the UAE are just starting to engage in Africa and more so in countries beyond just North Africa,” Lopes said. He noted that traditionally, GCC economies had held closer ties with the North compared to the rest of the continent—but that’s changing. The Investment Corporation of Dubai recently invested $300 million in Dangote Cement of Nigeria; Etihad has bought a 40 per cent stake in Air Seychelles; and Rani Investment, based in Dubai, has opened several luxury
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$54 billion
total foreign direct investment into Africa in 2014
$93 billion
total infrastructure investment need annually
$17.5billion total merchandise trade between Africa and the UAE in 2014
1.5%
The UAE’s share of global trade with Africa
branches in Mauritania, Sudan and South Sudan, and its 2014 acquisition of a 23 per cent stake in Ecobank in 2014. The Union National Bank and the Abu Dhabi Islamic Bank (ADIB) are also active in North Africa, while Dubai Islamic Bank (DIB) has recently been licensed in Kenya. “Given the high degree of sophistication in the finance and banking market in GCC countries and the role of GCC as an international financial hub, on the one hand, and the rapid development of the banking sector in Africa, on the other hand, the banking sector seems like a natural area for investments,” Lopes said. “The Afro-Arab partnership is one of the oldest, bound by history, geographical proximity, ancient trade links, and other economic, social and cultural ties that have been nurtured by trust as well as a spirit of brotherhood. One in two Arab League member countries are in Africa; about two-thirds of Arabs are also African; Arab countries make up more than a third of the African continent; and almost a quarter of the world’s Muslims are in Africa,” he continued. “This interconnectedness reinforces the strong bonds that the two regions share. In the light of today’s complex geo-political configurations, we have a unique opportunity before us to intensify and leverage our linkages through investments to tackle the challenges we face and come up with solutions for a sustainable future.”
CLOSING THE GAP hotels in Mozambique. On the policy front, relationships are also growing; recently Ethiopia opened an Embassy in the UAE. The financial sector in particular has seen a growing Gulf bank presence. Lopes cited a few recent examples, including Qatar National Bank’s (QNB) acquisition of banks in Egypt, Libya and Tunisia as well as the establishment of
Many policy makers, investors and bankers are very familiar with the number $93 billion—that is the estimated infrastructure gap in Africa annually. The need is clear and so is the benefit; Lopes cited estimates that infrastructure development alone could increase the continent’s per capita economic growth by two per cent a year and increase productivity of firms by as much as 40 per cent.
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Carlos Lopes (CREDIT: HERVE CORTINAT/OECD DEVELOPMENT CENTRE/FLICKR).
In order to move up the value chain and generate higher incomes and wealth, African countries have no option but to diversify—and African leaders are well aware of this. – Carlos Lopes
However many sectors that could contribute to this growth are being under-utilised. Lopes highlighted renewable energy as a field in particular need of investment. “Africa is well-endowed with all forms of renewable energy resources— hydropower, solar, wind, geothermal, biomass and even marine energy— yet today we are in a situation where the total installed electricity capacity in Africa is only about 160 gigawatts. By comparison, this is just over half of Japan’s installed capacity. Given the plentiful renewable energy resources of Africa, the energy mix of the continent is still dominated by fossil fuels with renewables making only 22 per cent of the installed capacity, dominated by hydropower,” he said, though he noted
that South Africa, Kenya, Morocco and Ethiopia have made significant progress. “Turning to the question of whether African governments are making sufficient efforts—in short, yes,” he said, citing the Programme for Infrastructure Development in Africa (PIDA), the NEPAD Presidential Infrastructure Champion Initiative, Africa Power Vision; the UN Secretary General’s Sustainable Energy for All initiative; President Obama’s Power Africa; IRENA’s Africa Clean Energy Corridor; and now the Africa Renewable Energy Initiative as examples of continent-wide progress towards infrastructure development, especially in renewable energy. And gains have been made on other key fronts, such as governance. “An improved business environment has contributed to investor interest and confidence. More economies in Africa have improved their regulatory environment compared to any other region. Regional integration also offers wider and integrated markets and cost efficiencies can be leveraged by tackling infrastructure deficits collectively,” Lopes said. “There is of course scope for more to be done. Already, various financing mechanisms to mobilise resources are taking root, changing Africa’s infrastructure landscape and there are plenty of opportunities for investors to partner in and support Africa lead its own development agenda.” On top of the infrastructure challenge, Lopes added that regional integration remain a major priority, with the establishment of the Tripartite Free Trade Area Agreement (TFTA) underway and the launch of the Economic Community of West African States (ECOWAS) customs union in 2015. Regional integration, like infrastructure, has seen significant progress but efforts to integrate and improve must continue.
www.bankerafrica.com
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COUNTRY FOCUS SUDAN
Khartoum, the capital of Sudan, has been growing rapidly due to rural instability (CREDIT: CLICKSAHEAD/SHUTTERSTOCK)
New dawn for Sudan? The Sudanese Government has committed to healing internal conflict and boosting inclusive growth—but the road ahead is rocky
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string of high-level meetings with African, European and United Nations officials at the beginning of the year set the tone for Sudan’s goals in 2016, culminating in a milestone “Roadmap Agreement” that will ideally set Sudan down the path of peace. At the end of March, United Nations Secretary-General Ban Ki-moon welcomed progress on the African Union roadmap agreement between the Sudan Government and political groups in Darfur, South Kordofan and the Blue Nile states to end fighting that has broken out intermittently since 2011. The agreement was brokered by the African Union High-level Implementation Panel (AUHIP) for Sudan and South Sudan, which is chaired by former South African President Thabo Mbeki.
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Following a three-day meeting on 21 March in Addis Ababa, Ethiopia, the Government of Sudan and Mbeki signed the agreement; the opposition parties did not. Nevertheless, in a statement from his spokesperson, Secretary-General Ban remained optimistic that the initiative would bring together the Sudanese Government and several opposition parties “to reach an agreement on a cessation of hostilities, humanitarian access and assistance and an inclusive national dialogue process.” In the statement, Ban called on the Government to “fully abide” with the Agreement and urged the other parties to sign it. “This would constitute a valuable step towards ending the war, providing assistance to communities in need and
enhancing the environment for an inclusive national dialogue,” Ban said. In a statement following the agreement, the European Union (EU) also backed the progress forged with the help of Mbeki and the AU. “This is an important achievement in the pursuit of peace in Sudan and in laying the foundation for an inclusive and comprehensive national consultation,” the Spokesperson for the EU said. “The EU looks to the remaining participants of the Addis meeting to fully engage in this process. Good faith on the part of all parties will be the essential to progress.” “In the meantime, violence continues, humanitarian needs are great and economic distress grows. Both government and armed opposition should extend their commitments made in late 2015 to unilateral cessations of
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hostilities. This would foster greater confidence among all the parties, give time to lay the ground rules for detailed negotiations and reinforce the efforts led by the AUHIP, supported by the European Union, to incorporate all political parties, movements and civil society into this vital political process,” the statement read. This likely supported the EU’s announcement, days later, that it would allot a EUR 100 million ‘special measure’ towards solving root causes of displacement and forced migration in the country. The fund, to be implemented under the EU Emergency Trust Fund for Africa, is part of an EU effort to increase its cooperation with Sudan. During a visit to Sudan, EU Commissioner for International Cooperation and Development, Neven Mimica said, “More than ten years after the start of the Darfur conflict, the level of displacement in Sudan remains huge, with over three million internally displaced persons still living within its borders. Our new support of EUR 100 million will essentially focus on improving the living conditions for those who call Sudan home, helping returnees to the country to reintegrate back into society, and improving security at the borders.” The new funding will focus on reducing poverty, promoting peace and good governance, supporting the creation of jobs and improving the delivery of basic services (such as education and health) in areas affected by insecurity and experiencing large migratory flows.
MOVING FORWARD During a press conference in Khartoum on 4 April, Martin Ihoeghian Uhomoibhi, the Joint Special Representative for Darfur and Head of the African UnionUnited Nations Hybrid Operation in Darfur (UNAMID), spoke on the sheer impact that these migrations and the continued political violence have had
on the country. At the same time, he commended the Sudanese Government for their cooperation in multilateral efforts to combat these conditions. Uhomoibhi noted that the Government of Sudan released $1 million toward the Darfur International Dialogue Consultation, a step in the right direction and 50 per cent of its total pledge. He also highlight President Omar Hassan AL-Bashir for his “invaluable” support of UNAMID and its mandate. Yet he did not sugar coat the reality on the ground. “Since mid-January 2016, renewed fighting between the Government of Sudan Forces and Sudan Liberation Army/Abdul Wahid has led to reportedly tens of thousands of civilians being displaced from in and around the Jebel Marra area into North, Central and South Darfur. Unfortunately most of those displaced are children and women as is the case wherever there is an armed conflict on our planet,” he said. Such incidents, he said, continue to have a negative impact on vital daily livelihood activities such as farming, firewood and water collection. Agriculture is a significant part of the country’s GDP, which is projected to grow 3.1 per cent in 2015 and 3.7 per cent in 2016. The latest African Economic Outlook (AEO) noted that rural instability has propelled rapid urbanisation, leading to increased housing shortages and the growth of the informal sector. The large informal sector is a key challenge facing the banking industry in the years ahead— according to 2014 World Bank data, only 14.5 per cent of the population above the age of 15 holds a bank account. But the AEO also notes that credit growth has been stagnant, due to low financial intermediation and the crowding-out effects of fiscal operations, but also limited by continued US-led sanctions on the country.
Though the country is implementing International Monetary Fund five-year programme to enhance macroeconomic stability and inclusive growth, rural instability and sanctions will continue to shape Sudan’s prospects for the future.
FAST FACTS
3.1%
2015 GDP growth
3.7%
2016 GDP growth
21.8% 2015 inflation
21.3% 2016 inflation
-.1.1%
2015 Budget balance of GDP
-0.8%
2016 Budget balance of GDP Projections, source: African Economic Outlook 2015
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COUNTRY FOCUS SUDAN
Social business combines profit with community need, while Sudan’s ‘social dimension’ financing adapts it to Shari’ah-compliant funding of projects of a social dimension nature (CREDIT: IVELIN RADKOV/SHUTTERSTOCK).
Bringing social dimensions to business Innovative microfinance in Sudan rests on a Shari’ah-compliant variation of social business, writes Professor Badr El Din A. Ibrahim, a Microfinance Consultant in Sudan
I
n terms of theory and practice, microfinance is evolving, especially when it comes to the shift towards financial inclusion for the poor and social business to solve societal problems. Yet, while the sector is growing stunningly fast, its big expectations have not been met to date. Sudan is an example of a fully-fledged Islamic system that is harnessing its financial resources to achieve the goal of poverty alleviation. Since 2008, the
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Central Bank of Sudan policy has been that each domestic bank must allocate 12 per cent of its resources towards microfinance, through their counters or the provision wholesale finance to licenced microfinance institutions. Yet the social goals of Islamic banks in Sudan are also achieved via ‘finance with a human dimension’. This concept is different from the ‘social business’ concept developed by Professor Mohammed Yunus, a banker and entrepreneur who
paved the road for microfinance with the foundation of Grameen Bank.
THE CONCEPT OF ‘SOCIAL BUSINESS’
Social business means to harness financial resources through sustainable and profitable investments to address social problems without distribution of profits to the shareholders, according to Yunus’ 2013 book, Building Social Business.
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According to the book, there are seven principles of social business— first, that its aim is combating poverty or any other problems threatening society and the community, such as education, health, and environmental issues. But second and third, the company should be financially sustainable, and investors must have the right to get their capital only—but not dividends. Fourth, investment earnings should be retained within the company for the purpose of expansion and improvement. The final three principles focus on social aspects: the company should work to protect the environment; the workers should take the market wage and work in the best environment, comparable with the current working conditions; and the work should be enjoyable and amusing. The Islamic Takaful, or ‘micro– insurance’, system is the closest current example of Professor Yunus’ social business principles. It depends on the principle of solidarity in the form of a collective guarantee amongst participants against potential losses that could hurt one or many of them. The Sudanese model of Islamic Takaful is the first model in the world that does not allow the shareholders to have a share in the surplus; they are instead entitled to share in the Shari’ahcompliant investment returns.
FINANCE WITH A ‘SOCIAL DIMENSION’
In the Islamic finance system, microfinance is an integral part movement of money that carries the dual functions of profitability—that is, cycling money for the benefit of the individual and society at the same time. The Central Bank of Sudan recognises the social dimension of funding as wholesale finance that facilitates the implementation of projects that are related to: rural development and infrastructure; women’s empowerment; creation and support for educational, training
and health institutions; installation of water and electricity networks; funding for affordable housing services and improvement of homes; and funding university students, as well as consumer goods for cooperatives, associations and federations. The project or programme should satisfy part or all of the following criteria: be initiated and participated in by the local community to achieve the interests of the poor and vulnerable; show clearly the ability to meet the necessary needs and priorities at the local level; be based on the principle of self-help; and arise from grassroots community organisations or institutions of financial intermediation.
assets themselves rather than service providers, and it seems to be ideal— but may not be applicable in many other countries. Moreover, there are many ways in which we can achieve the objectives of social business in line with the economic and social conditions of the countries. The Sudanese Islamic microfinance concept is consistent with the vision of Professor Yunus, in particular the trend towards achieving profits and maintaining social dimensions of investment. However, Sudan’s model does not apply the principle of borrowers’ ownership to the service providers and their investments.
Social business is a meshing of charity and investment that aims to achieve individual profit. – Professor Bad El Din A. Ibrahim Under the social dimension principle, thousands of homes in peripheral neighbourhoods of the city of Port Sudan and East Sinnar were connected to energy through microfinance funding from banks which were guaranteed by the state governments. Repayments were made in monthly instalments with pre-paid electricity. Work is now underway to extend the same project on a wider scale, with banks to cover all peripheral areas in Khartoum state. The ‘social dimension’ type of microfinance has evolved dramatically and in recent years led to increased rates of finance in targeted communities by Sudanese banks. Previously, banks’ microfinance portfolios did not exceed five per cent, yet by adding a social dimension funding The two types of finance compared Professor Yunus’ idea of social business is not different from the reformulation of the two of concepts of charity and investment that aims at achieving individual profit. Professor Yunus’ vision is that these investments stand on poor people owning the
This is replaced by funding projects of a social dimension nature from specialised and commercial banks. This funding achieves the same goal—addressing societal and communal problems.
REPLICATING THE MODEL
Social business is a meshing of charity and investment that aims to achieve individual profit. The concept is also aimed at achieving individual investment based on making profits while also focusing on community issues. The Sudanese experience in Islamic microfinance is consistent with the vision of Professor Yunus, except that borrowers do not own the assets themselves. Rather, they receive funding from banks for social dimension projects. In the course of its microfinance progress, Sudan applied a system of investment with a social dimension. This concept evolved dramatically and has led to increased rates of microfinance amongst Sudanese banks. The two concepts could be widely replicated worldwide, especially in Africa.
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POLICY SPOTLIGHT
A milestone decision, a long road ahead A landmark decision in South Africa sets a new precedent for presidential powers— but what happens next?
While he denied any wrongdoing, President Zuma agreed to “unreservedly” support the Court’s decision. (CREDIT: 360B/SHUTTERSTOCK)
O
n 31 March, the South African Constitutional Court (ConCourt) ruled that the President had violated the constitution by not following the Public Protector’s recommendation on repayments for state-funded upgrades to his home, Nkandla. The controversy, which has dragged on for two years since Public Protector Thuli Madonsela’s initial report, has wide implications not just for South Africa’s political system, but also wavering investor and business confidence. Public Protector Madonsela first issued a report in 2014 alleging that Zuma had “unduly benefitted” from state-funded upgrades to his home in
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Nkandla. Though Zuma argued that security measures constituted the majority of the ZAR 246 million cost, upgrades such as a swimming pool on the state’s dime were difficult to explain (although he did say the pool was for fire safety). The ConCourt decision was widely supported in the press, the legislature and finally by Jacob Zuma himself. In a televised address to the country on 1 April, President Zuma spoke confidently on the ruling and the state of democracy in South Africa. “I welcome the judgement of the Constitutional Court unreservedly,” he said. “The judgment has underscored the values that underpin our hard-
won freedom and democracy, such as the rule of law and the accountability of public office bearers, while also respecting the rights of public office bearers facing scrutiny.” Zuma insisted that he had been willing to pay a portion of the costs for some time, but an amount could not be agreed upon. The Court ruled that six features of the Nkandla upgrades must be covered. “I have consistently stated that I would pay an amount towards the Nkandla nonsecurity upgrades once this had been determined by the correct authority. The Court has ruled on the matter and has devised a mechanism for such determination by the National Treasury.”
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However he also stressed that he did not knowingly violate the constitution. “I would like to emphasise that it was never my intention not to comply with the remedial action taken against me by the Public Protector or to disrespect her office,” he said, referring to Mandonsela. He added that, “The intention [of the Nkandla upgrades] was not in pursuit of corrupt ends or to use state resources to unduly benefit me and my family. Hence I have agreed to pay for the identified items once a determination is made.” Now, the implications of the ruling are getting hazier. Several members of Zuma’s ruling African National Congress (ANC) party have come out in support of the President, even, in some cases, going so far as to say that the ANC could help Zuma with payments on Nkandla. David Mabuza, Premier of the Mpumalanga province in eastern South Africa, hinted as much following a meeting of party members in early April. That the ruling political party would help the incumbent president repay costs that he already charged to the state does not sit well with some. The Nkandla controversy, combined with allegations involving the Gupta family (see box out) have added to mounting pressure, led by opposition parties the Democratic Alliance (DA) and the Economic Freedom Fighters (EFF), for Zuma to step down. However the ANC has stood firm behind its President. ANC Secretary General Gwede Matashe said on 13 April that removing Zuma could be damaging and divisive for politics, citing the party’s 2008 push for former President Thabo Mbeki to leave office. In an editorial published just days before by news24, Mbeki himself commended the ruling and the judicial independence of the court, calling it a “vibrant functioning” of the country’s constitutional democracy.
Whether or not Zuma is removed from power, the prospects for South Africa’s economy are grim. On 13 April, the International Monetary Fund (IMF) cut its forecast for GDP growth to 0.6 per cent for 2016. Inflation topped seven per cent in February 2016 and government debt has grown even more worrisome, leading the international ratings agencies to put the country on watch for downgrade. While there are several factors involved—including a stagnating commodities market, a damaging drought, and China’s slowdown—Zuma’s December 2015 decision to bump Finance Minister Nhlanhla Nene out of office for a relatively unknown ANC member also shook investor confidence.
The judgement has underscored the values that underpin our hard-won freedom and democracy. —S outh Africa President Jacob Zuma speaking on the recent ConCourt decision
Zuma, Guptas and the banks Another controversy to unspool in recent months is Zuma’s close relationship with the successful Gupta family, a group of business-savvy brothers that critics allege have had undue influence on the President and some of his decisions. While the government investigates the allegations, banks have taken action. Oakbay, a large South African company owned by the Guptas said in a statement released on 6 April that First National Bank (FNB) had closed its accounts with no warning or justification. The statement further revealed that Okay’s accounts with Absa Bank had been closed in December 2015, again with what it claims was no explanation. “We are already in the process of moving our accounts to a more enlightened institution,” the statement read. First National Bank (FNB) confirmed to Banker Africa that it no longer had banking accounts associated with Oakbay Investments Ltd. Nanesh Desai of the FNB Risk Department said, “We can further confirm that we have given notice to close various banking accounts of entities that may be associated with Oakbay Investments (Pty) Ltd. The Oakbay statement faced the rumours surrounding the Gupta-Zuma relationship head on. “These latest incidents are clear proof that the recent allegations against the company and the wider Gupta family are all part of a carefully orchestrated political campaign, which, tragically, involves some of the country’s most senior institutions and individuals. It is very disappointing that FNB and Absa have allowed themselves to be dragged into the political in-fighting by the campaign’s orchestrators,” the Oakbay statement said. “We challenge the purveyors of the numerous false allegations made against us in recent months to provide any evidence of wrongdoing. It is time to put up, or shut up.”
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CASE STUDY
Laying tracks for regional trade Qalaa Holdings decided to invest in Rift Valley Railways in 2010 after strong freight volumes through Mombasa.
Inter-regional trade is becoming increasingly important but infrastructure has to catch up to demand, writes Karim Sadek, Managing Director at Qalaa Holdings
T
he countries of East Africa are currently grappling with a set of challenges and developmental priorities that are similar to what we are going through in Egypt, our home market. Expanding trade and building infrastructure to keep pace with the demands of young, growing populations are among the most pressing challenges at present. In 2015 Egypt’s trade with Africa accounted for less than five per cent of total trade and intra-African trade
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as a whole stood at only 12 per cent of the continent’s aggregate trade. Although an upward trend has started to emerge, there is still much that needs to be done. The Africa Union’s Agenda 2063 envisions a fully functional African common market with free movement of people, goods, capital and services. To realise this transformation goal, Africa needs to put in place the necessary strategies, processes and infrastructure to harness the continent’s potential.
While trade is growing by up to eight per cent per annum across the region, without the transport and logistics sector becoming more efficient, growth will be severely constrained. Reducing cost and time of transport and logistics would increase trade, reduce the cost of living, contribute to higher exports and faster growth for Africa. According to the African Development Bank (AfDB), “Africa still has massive infrastructure needs” yet invests only four per cent of its
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GDP in infrastructure, compared to China’s 14 per cent investment. The AfDB estimates that bridging the infrastructure gap could increase GDP growth by an estimated two percentage points a year. According to the African Union’s Programme for Infrastructure Development in Africa, six of 11 cross-border railway lines will need physical expansion by 2020 and all 11 cross-border railways will need to be expanded by 2040 to meet demand and run efficient rail services. In terms of logistics, it’s not just the physical infrastructure that is lacking but also the development of international-standard logistics services. In Africa, you are better able to operate as a logistics service provider if you own the transportation asset. Within the above context, the investment case for Rift Valley Railways (RVR), the national railway of Kenya and Uganda, was obvious. In 2010 Qalaa Holdings acquired a stake in RVR and today controls 85 per cent of the rail operator. The decision to invest was underpinned by the strong freight volumes moving through the Port of Mombasa, the drive to expand intra-regional trade, and the simple fact that a properly functioning railway should be the most efficient provider of long-haul bulk transport in Africa. For the past five years we have been working with RVR’s management team to implement a comprehensive $300 million turnaround programme that includes investments in engines, wagons and the rebuilding of track to improve safety and reliability, increase capacity and enhance efficiency. By doubling the size of the locomotive fleet, acquiring 500 new high capacity wagons, and installing satellite tracking and GPS technology on all trains, we have managed to
Any transport alternative to trucking has potential to aid the trade and logistics sector, says Sadek.
nearly triple our haulage capacity and significantly reduce transit time along the Mombasa-Nairobi-Mombasa route. We have reopened 500 kilometre of track on the Tororo-Pakwach railway line in northern Uganda after a 20-year hiatus, and developed the skills of RVR’s 2,000-strong workforce through a management training programme that has proven highly successful. Today we are proud to report that the results of these efforts have been positive for RVR and we believe that the Governments of Kenya, Uganda and Egypt stand to benefit as well. By making use of an efficient rail transport system exporters from Egypt, Kenya and Uganda can grow their businesses and expand the volume of intra-regional trade. More specifically, we view transportation as a sector with a great deal of growth potential in Africa. The advantage of the rail and logistics business is that there are always going to be goods at port that need to be moved to their destinations
further inland. RVR is currently moving six per cent of the cargo from the port of Mombasa, where there is huge opportunity to compete with trucking and take freight off the roads and onto rail. We believe that with our investment to date, and a focus on commercial strategy and efficiency at the port, this number can rise quickly. It is also worth noting that in recent years cargo volumes at Mombasa have been rising by more than 10 per cent year-on-year. Ultimately we believe that any alternative form of transportation to trucking, be it river transportation or rail transportation, has the potential to unlock assets and economic opportunities in many parts of Africa that are otherwise unavailable because of unreliable transportation and transportation that is simply too expensive. Using rail will also help African countries unlock and export some of the oil discoveries that have been made in the hinterland. We see the expertise that we’ve developed in Kenya, Uganda, Egypt and South Sudan, on both rail river transportation as expertise that can be replicated and scaled in other countries as well.
Rift Valley Railways and Qalaa Holdings Qalaa Holdings has invested $300 million in Rift Valley Railways (RVR) and now owns 85 per cent of the railway and a 25-year concession to operate its 2,352 kilometre of track linking the Indian Ocean Port of Mombasa to the interiors of Kenya and Uganda, including the Ugandan capital of Kampala and the northern part of Uganda.
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CASE STUDY
Energy and sustainability in Sierra Leone In its post-Ebola recovery, the country seeks to balance a massive power deficit with sustainable options Sierra Leone wants to focus on renewables but needs to meet demands (CREDIT: WELCOMIA/SHUTTERSTOCK)
S
ierra Leone has received a $300,000 grant from the Climate Investment Funds (CIF) to formulate and launch a national investment plan to transform its renewable energy sector, just months after the African Development Bank (AfDB) awarded a $20 million grant to an independent oil investment in the country. The CIF is backed by five multilateral institutions—the AfDB, the Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB), and World Bank Group (WBG)—to provide grants, concessional loans, risk mitigation instruments and equity in order to bring more private sector investors into the renewable energy field. Sierra Leone’s investment plan will be developed under the CIF’s programme for Scaling Up Renewable Energy in Low Income Countries (SREP), in what the CIF says is a collaborative approach that includes multiple ministries and stakeholders throughout the country, including private sector, commercial
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and development banks, and nongovernmental organisations (NGOs). Through the plan, the CIF said that Sierra Leone will create a series of projects to help reduce barriers for renewable energy development and market transformation. Potential areas of SREP intervention are renewable energy technologies in on-grid and offgrid areas such as solar photovoltaic, hybrid generation systems, minihydro, and wind resource mappings, and dissemination of sustainable energy systems with a strong focus on increasing access to energy with private and public sector participation. “Sierra Leone has great renewable energy potential, including solar, wind, hydroelectricity, and biomass from forests and crops such as rice, straw and sugar cane,” said Joao Duarte Cunha, AfDB’s Coordinator for SREP “However, the country has harnessed very little of this potential so far. The SREP programme provides a critical opportunity for the country to tap into those resources and transform its energy profile, raising the level
of its citizens’ access to power in a sustainable and climate-friendly way.” The grant also follows a landmark investment by the AfDB into a 50 MW power plant in Sierra Leone, significant for being the Bank’s first independent power producer investment. The Bank approved a senior loan of up to $20 million in December 2015 to meet a serious energy deficit in the country. Though authorities have made renewable energy a priority, the country is currently struggling with a more than 50 per cent supply deficit of electricity generation capacity—also, according to the AfDB, only 10 per cent of the population currently has access to electricity. The planned power plant is expected to add 60 per cent capacity to the grid, which will be vital in the country’s post-Ebola recovery. In January 2016, Iyabo Masha, IMF Special Representative to Sierra Leone, said the challenges are still daunting in post-Ebola economic recovery. Combined with the global commodities drop that depressed Sierra Leone’s mining sector, new investment and a diversified power sector are badly needed.
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26/04/2016 16:32
THE AUTHORITATIVE VOICE OF ISLAMIC FINANCE Essential reading for an expanding industry - Islamic Business & Finance is the world’s most thought-provoking monthly magazine dedicated to the development of Islamic finance globally.
Islamic Business & Finance is a controlled circulation publication. You may apply to subscribe via our website or by emailing subscriptions@cpifinancial.net
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24/04/2016 10:35
TRAILBLAZERS
Dr. Seth Berkley speaking at the January 2016 World Economic Forum in Davos, when he announced Gavi’s landmark agreement with Merck to develop an Ebola vaccine (CREDIT: MONIKA FLUECKIGER/WORLD ECONOMIC FORUM/FLICKR).
Immunisation for an economic foundation Dr. Seth Berkley, CEO of Gavi Alliance, talks the cost benefits of vaccines and new progress in beating Ebola
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D
r. Seth Berkley is a name that many people know. At the helm of the International AIDS Vaccine Initiative (IAVI) that he founded in 1996 and led for 15 years, Berkley was instrumental in raising AIDS spending by governments and making HIV/AIDS research a priority. For his work, Berkley was named one of TIME’s ‘100 Most Influential People in the World’ in 2009; Sergey Brin, Co-Founder of Google, penned the essay on his recognition. When he joined Gavi, the Global Alliance for Vaccines and Immunisation, in 2011, Berkley’s focus shifted to a whole other set of devastating diseases and challenges—because while these diseases had vaccines, many of them were not reaching those most in need. Gavi was founded in 2000 as a publicprivate partnership to both make vaccines accessible and vaccination programmes sustainable. The organisation was born out of an international initiative to bring vaccines to children across the world, but started small with just one vaccine for Hepatitis B. As the alliance developed and added powerful allies like Bill Gates, its vaccination programmes grew to reach more than half a billion children and prevent millions of deaths from yellow fever, measles and other common killers. The first issue in encouraging vaccine uptake is understanding their cost effectiveness for governments, said Berkley. He cites a February 2016 study by Johns Hopkins School of Public Health that found the cost benefit of vaccines is 16 to one—as in, every dollar spent on the programme comes out to a $16 benefit. When the study considered broader economic and social benefits, the return on investment grew to 44 times the vaccination costs. “It is extraordinarily cost effective. The challenge for countries of course is that if the vaccines are really expensive, they still don’t see any help in being
able to roll those out,” Berkley said. Gavi employs a co-financing model that helps countries roll vaccine programmes out without treating them like a one-time charity project. With poorer countries, this means starting as small as $0.20 a dose for the governments, increasing by 15 per cent a year until the country becomes lower middle income and ‘graduates’ the programme, usually in a five-year timeframe. In the intervening years, ideally the health and finance ministries have worked together on a sustainable model to finance vaccination programmes. By graduation, the countries have taken on the full cost of the vaccines, but their gross national income (GNI) will have been increasing parallel to that transition, said Berkley. “On average they have to spend 0.6 per cent of their health budgets on vaccines, as opposed to five to 10 per cent,” he said. “So, it’s a cost-effective intervention for them that is affordable as well.” A large part of helping with prices has to do with Gavi’s size in the market—the Alliance purchases vaccines for 60 per cent of the world’s children, meaning they have leverage with companies producing the vaccines, not just with pricing, but in terms of guaranteeing a market for new and developing vaccines that need to be a priority. A huge instance of this occurred with the recent Ebola outbreak. In January 2016, Gavi completed an advanced purchase commitment of $5 million with Merck for an Ebola vaccine that is currently being developed. Berkley feels confident about the vaccine’s progress; he noted that in clinical trials, the protection rate had been as high as 100 per cent and as low as 78 per cent. “The bottom line is, it is very good candidate,” he said. But it is still experimental and not licensed, meaning the Alliance’s advanced
7 million
Estimated deaths averted through Gavi vaccination
500 million 81% Children immunised
Share of children in Gavi countries with basic immunisation
200
New vaccines introduced between 2011 and 2015 with Gavi support
$16
The dollar return on investment of each dollar spent on immunisation, according to Johns Hopkins. purchase included the condition that it will be submitted for licensure by the end of 2017, but that 300,000 doses will also be made available to Gavi by May 2016, in case of another emergency outbreak. Berkley says ideally the vaccine will also be heat stable, cover all the strains of Ebola, and be used prophylactically— that is, as a preventative—for healthcare workers and burial crews. In the meantime though, the initial Merckcont. overleaf
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TRAILBLAZERS
cont. from page 35
developed vaccine will be a huge step in conquering the devastating disease. “There is a whole other agenda that needs to happen and we’re now involved in that conversation, but of course the critical issue is to make sure that we don’t end up with another outbreak,” Berkley said.
TRANSFORMING THE MARKET While the Ebola vaccine is on the forefront of international agendas, a key long-term priority of Gavi’s is the overall evolution of the vaccine manufacturing sector. “In addition to focusing on coverage and equity, we want to strengthen the supply chain. Vaccines don’t deliver themselves. We spend about a quarter of our money on health systems’ strengthening,” Berkley said. This strengthening includes core infrastructure, but also innovations to encourage green power usage and more efficient data systems. “We feel we’re building the primary healthcare network, and there is no other intervention that reaches more children than immunisation. So in essence we’re building a kind of a core infrastructure that everything else is built upon,” Berkley said. There were originally five manufacturers supplying Gavi; today, there are 16. “Those news companies, most of which are in middle income countries, provide vaccines at a more attractive price, and because there is competition, they will end up with an ability to adjust the price to demand and security,” Berkley said. Vaccine producers in India and Brazil constitute a significant percentage of these newer suppliers and China has just joined the list with its first pre-qualified vaccine, but Berkley says there are no Gavi suppliers in Africa yet. “There is a discussion now on whether Africa should enter this space or not. Vaccines are very different than drugs…they are living things,” he said. Therefore it is extremely expensive to
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Bringing in new investors The International Finance Facility for Immunisation (IFFIm) was established in 2006 to raise fund for Gavi through bond issuance. In recent years it opened up a whole new channel of funding with the issuance of its first Sukuk, or Islamic bonds. Its debut issuance in 2014 raised $500 million in November 2014 after attracting bids of $700 million. A second issuance in September 2015 raised $200 million, 1.6 times oversubscribed, and attracted a combined $38 million from Saudi Arabia, Oman and Qatar, their first commitments to Gavi. “More than 50 per cent of our children live in OIC countries. We have a whole strategy to try to engage further with the Middle East. It’s important because traditionally we had not really engaged much…but they’re in a primary place,” Berkley said, citing the annual Hajj to Saudi Arabia as an example. The latest Sukuk was coordinated by Standard Chartered Bank, working with joint lead managers Emirates NBD Capital Limited, Maybank Kim Eng, National Bank of Abu Dhabi (NBAD) and NCB Capital Company. The issue, maturing on 29 September 2018 has an issue price of 100 per cent and carries a quarterly coupon of 14 basis points over three-month USD LIBOR. Gavi said the regional distribution of investors was 65 per cent in the Middle East, 18 per cent based in Asia and 17 per cent in Europe. Banks took 78 per cent, central banks / official institutions took 18 per cent and fund managers four per cent. create a plant. You have to have really strong regulatory agencies to be able to guarantee that that product is always produced exactly the same.” But with fast-changing environments and developing economies, Berkley does not rule it out. As it is, an estimated 60 per cent of Gavi vaccines have been rolled out in Africa. “The important thing about Africa is that we’re seen this dramatic change. Eighty one per cent of children [globally] have received at least the most basic of vaccines…In Africa that’s about 78 per cent, which is the highest [coverage] there has ever been,” he said. The Alliance aspires to roll out the same number of vaccines from 20162020 as it did from 2011-2015. This includes core vaccines like Hepatitis and polio, but also the newer Rotavirus (severe diarrhoea) and Pneumococcal (pneumonia) vaccines. In 2012, Ghana became the first country to roll out both vaccines simultaneously.
The vaccine against Human Papilloma Virus (HPV) has also made huge headway, despite its different target group (adolescent girls rather than small infants) meaning that countries had to approach this vaccine’s dissemination slightly differently. “It has been a little slower with countries for them to prove that they know how to roll it out and get good coverage,” Berkley said. “Cervical cancer is the largest cancer killer for women in Africa, and the HPV vaccine can prevent most of it.” In fact, Berkley said that while deaths in childbirth are going down across the world, cervical cancer deaths are rising. Yet while more developed countries struggle to implement effective HPV plans, there are countries such as Rwanda, with 90 per cent coverage. “This is about really making a difference there and it’s something exciting,” Berkley said
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SECTOR FOCUS ISLAMIC BANKING
Tapping new markets to meet goals Islamic finance is increasingly become an appealing route to meeting development objectives, according to Standard & Poor’s research
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ollowing the widely successful Millennium Development Goals (MDGs) formed in 2000, members of the United Nations drew up 17 new sustainable development goals (SDGs) in September 2015, including 169 measurable targets. These goals build on the targets achieved in poverty reduction, maternal health improvement, access to education and several other fields over the past 15 years. In its latest report, Standard & Poor’s Ratings Services (S&P) said that Islamic finance could contribute to meeting some of these goals. “Islamic finance could play a role—a modest one at least—in meeting some of the SDGs, particularly those that are in line with the core principles of Islamic finance,” Mohamed Damak, Standard & Poor’s Global Head of Islamic Finance, said. “Some Sukuk issues by global multilateral lending institutions over the past few years illustrate this point, although their overall amount remains small compared with multilateral lending institutions’ (MLIs) conventional debt issuance,” Damak continued. “Still, Islamic finance will likely remain a moderate contributor due to the industry’s small size and the issues it has yet to resolve to unlock its global potential.”
ISLAMIC FINANCE ASSETS VERSUS GDP OF ORGANISATION OF ISLAMIC CONFERENCE ECONOMIES Islamic finance total assets (left scale)
OIC economies’ GDP (left scale)
Perventage of GDP (right scale) (%) 35
(Tril. $) 8 7
30
6
25
5
20
4 15
3
10
2
5
1 0
0 2008 2009 2010 2011 2012 2013 2014 2015 OIC–Organisation of Islamic Conference Economies. Sources: International Monetary Fund and Standard & Poor’s
©Standard
& Poor’s 2016
The report, entitled Islamic Finance Could Aid Modestly in Achieving Sustainable Development Goals, noted that multilateral organisations (MLIs) are increasingly using Shari’ahcompliant products as a method of raising funds. The International Finance Facility for Immunisation (IFFIm) and International Finance Corporation (IFC) have both issued Sukuk in recent years. “Although the oversubscription rates are somewhat lower for these MLIs’ Sukuk than for some governments or private sector Sukuk issued over the past
few years, we consider that access to the Sukuk market could offer MLIs the opportunity to diversify their funding bases and tap liquidity that is not allowed to go the conventional route,” it said. S&P estimated that the overall investor base with a Shari’ah-compliant appetite is $500 billion worldwide. “In addition, with Basel III deadlines approaching for some Islamic finance core markets and the chronic lack of high quality liquid assets (HQLA) in the industry, we think Sukuk issues by MLIs might attract some interest,” it stated.
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SECTOR FOCUS ISLAMIC BANKING
The key to inclusive growth SMEs are vital to growth and Islamic finance is ideal for SMEs, writes Ahmed Osman, Governor of the Central Bank of the Republic of Djibouti
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The risk sharing aspect of Islamic finance is suited to SME’s realities, says Ahmed Osman
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jibouti is a small country situated on the horn of Africa at the strategic crossroads of the Red Sea and the Indian Ocean, close to one of the world’s busiest shipping lanes. It has seen rapid economic growth in the last fifteen years, becoming an international maritime hub. Djibouti’s economy is expected to grow by 6.5 per cent in 2016, mainly due to the many major infrastructure projects currently underway such as a new multi-purpose port, two new international airports, a modern electric railway to Ethiopia, as well as luxury hotels, shopping complexes, hospitals and housing across Djibouti. Growth has been driven primarily by the tertiary sector, with transportation and port activities accounting for 69 per cent of economic activity in 2014. However, Djibouti has a flourishing informal sector comprising small-scale production of goods and services which account for 60 per cent of all business activity in the country. Under the government’s longterm plan, Vision 2035, it will integrate small businesses into its formal, regulated economy and diversify the sources of growth for Djibouti. Islamic finance can play a significant role here by supporting those small enterprises not currently part of the formal
economy. It opens additional funding avenues for small businesses by way of new microfinance products, which are key to creating jobs and eradicating poverty. At an Islamic finance conference in Kuwait in November 2015, IMF Managing Director Christine Lagarde said that Islamic finance holds the promise to foster inclusive growth and support the livelihood and aspirations of the people in Africa and beyond, adding that risk sharing features and the strong link of credit to collateral means that it is well suited for smalland medium-sized enterprises (SMEs). Islamic finance is supported by the Djiboutian people who are increasingly drawn to financial products that conform to their religious beliefs. In early 2012, the government launched a microfinance pilot project backed by the Islamic Djibouti Social Development Agency, encouraging access to an Islamic financing scheme for 10,000 households in the country. SMEs are very important in Djibouti in terms of employment generation, sustainability and economic growth, providing significant opportunities to employ women and young people. Djibouti has a very young population with 44.4 per cent under the age
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SMEs are very important in Djibouti in terms of employment generation, sustainability and economic growth, providing significant opportunities to employ women and young people. — Ahmed Osman
of twenty. This poses employment challenges to its growing economy. The Government plans to improve access to Islamic finance together with its five-year development plan to focus on private sectors such as tourism, ICT, fisheries and the manufacturing industries. This approach will benefit small businesses in these sectors and provide more employment opportunities for Djibouti’s youth. Currently, only five per cent of SMEs receive funding from the banking sector in Djibouti. In order to create a better business environment for them, banks have started to provide new financing initiatives. For example, in March 2016, Djibouti’s Central Bank and the Ministry of Economy and Finance collaborated with the World Bank and FIRST Initiative for technical assistance to design a Partial Credit Guarantee Fund as part of a broader initiative to lay the foundation for private sector growth. In addition, efforts are being made to connect SME owners to know-how from international investors. The National Confederation of Djiboutian Employers and the Federation of Djiboutian Corporations actively encourage foreign companies and investors to connect with Djiboutian SMEs, thereby sharing knowledge, creating employment and encouraging the use of locally manufactured goods. Overall, the government of Djibouti is creating an enabling business environment for small enterprises, alongside the establishment of a financial, regulatory framework to account for Islamic finance’s risk and profit sharing model. It is also developing ways to strengthen the creditworthiness of SMEs. Despite its fairly recent arrival in Djibouti, Islamic finance has contributed significantly to the financing of the economy and has a firm foothold in the country’s banking system.
Islamic finance is growing fast—at 20 per cent per annum—and has enabled the government, local companies and foreign investors to access new pools of liquidity for infrastructure development. Foreign Shari’ah-compliant institutions have been prominent in supporting a number of large capital projects. For example, the building of the Doraleh Container Port was facilitated by a $617 million loan backed by the Multilateral Investment Guarantee Agency, which is part of the World Bank, and funded by Dubai Islamic Bank and Standard Chartered. Reinsurance for the deal was covered by the Islamic Corporation for Insurance of Investment and Export Credit. As a Muslim country situated at a commercial crossroads, Djibouti is a strong contender to be the Islamic finance hub for the whole of Africa. Economic growth is strong, averaging five per cent over the past eight years. Furthermore, the Islamic finance sector has grown considerably—three out of ten banks in Djibouti are Islamic with assets over $324.4 million accounting for 17 per cent of total assets in the banking sector. Perhaps most importantly, Djibouti has a world-class regulatory framework providing the right environment for the establishment and success of Islamic banks in Africa. To accelerate the penetration of Islamic finance in Djibouti and in Africa as a whole, the government is cooperating with its African neighbours to offer Islamic finance products, train its people and share successful experiences. Every year Djibouti hosts the Islamic Finance Summit gathering world leaders to exchange expertise in this field. With the support of partners such as the Islamic Financial Services Board, the International Monetary Fund and the Islamic Development Bank, Djibouti is well positioned to capture the opportunities offered by Islamic finance in Africa.
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TECHNOLOGY
Say goodbye to payments management in core banking Success in digital payment processing is about agility and without a major shift in payment system architecture banks will ultimately fail, says Mick Fennell, Vice President, MEA, Volante Technologies
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ransforming payment processes to remain competitive in today’s market has become a high priority for banks around the world. To address the challenge, many of these banks have implemented a new, separate, distinct, centralised payment engine outside their core banking system. It is fair to say though that, as of today, only one or two banks in each country in Africa have embarked on a similar system strategy. However, that small number is steadily changing. Banks in Africa are starting to source new enterprise payment hubs, and these selections represent a major upheaval to the core processing of banks in the region. Core payment processing facilities are arguably the single most important transaction service provided to their customers—so why are African banks willing to make such major changes? Why create a separate system and invite the risks that such change generates? There must be a compelling reason? Yes, there is. It’s called the digital payments world. This new era of multichannel, dynamic, diverse, real-time, and disruptive payment processing flows has created a devastating range of digital payment challenges that banks have to address or else they will be left behind on the scrap heap of obsolescence.
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These challenges are compounded by bank customers who are continuing to demand greater transparency, faster executions, and more diverse ways to integrate and communicate. Whilst internally, the bank’s own business heads are continually pushing for new services, better analytics, and greater processing efficiencies. Core banking system payment modules were never built to cope with
these types of demands. The digital payments era now requires a much greater level of agility, openness, flexibility and transparency. Banks need to orchestrate changes quickly, they need to continually take-on and roll-out new payment types, new channels, and new clearing mechanisms. They need the capability to configure different orchestration flows, such as embedding a new
Digital payment challenges Ü Increasing transaction volumes: payment volumes in emerging markets are increasing by 18.3 per cent per annum (according to a World Payments report, 2014) putting a strain on system resources. Ü Channel proliferation: increasing diversity in channels and payment instruments must be managed. From e-commerce initiatives to mobile wallets, the orchestration and management of these new transactions must be supported efficiently. Ü Real time clearing: the global trend is towards faster, immediate -payments and African markets are starting to feel the pressure to support such dynamism. Ü Changes in message standards: clearing mechanisms are moving to global ISO XML standards, demanding support in core systems for new and expanded data sets that help to populate and validate more dynamic message formats. Ü Regulations: whether for anti-money laundering (AML), anti-terrorist funding, capital adequacy, or statutory reporting, banks continue to drown under a sea of changing and expanding sets of regulations putting pressure on the system to amend core processes by embedding a new function and/or providing active payment related data on demand.
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A combination of increasing transactions volumes and channels, along with regulations and customer expectations, is driving fast change in payments processing, says Fennell.
Core payment processing facilities are arguably the single most important transaction service provided to their customers—so why are African banks willing to make such major changes? — Mick Fennell, MEA Vice President for Volante
service within an existing transaction lifecycle. Such enhancements cannot be applied efficiently or cost effectively when payment functions are embedded within the core banking system. Many banks have tried to ignore the inevitable by choosing to take an evolutionary approach. They seek to insulate their core system’s payments module from external change through incremental add-ons, new modules and system upgrades. Whilst this is not the ideal approach, as the fundamental limitations of the core modules remain, it can plug gaps and addresses specific
projects and challenges in the short term. New channels can be added, new payment methods configured and new clearing mechanisms can be on-boarded. But over time, this incremental, evolutionary approach becomes evermore complicated, leading to longer roll-out times for new services. Eventually, the organisation realises that competitor banks that have moved to a new centralised payment hub, can service customers and market demands faster and consequently have a distinct competitive advantage. They have the agility to rapidly orchestrate changes to their process flows, integrate seamlessly with new services, and thus cope with the demands of the digital payments age. Once this fundamental differentiation is understood, the bank is compelled to take the revolutionary approach and move the central payment management and processing out of their core banking system and into its own dedicated payments hub. The need to retain customers, the need to remain competitive, the need for processing agility, all outweigh the risk of change. The biggest and most successful banks in the world have been running dedicated payment processing engines for many years, and as stated earlier, a number of banks in Africa have already implemented such hubs to gain a competitive edge in the market. Over the coming years that number will rapidly expand as the reality of the limitations and costs of the incremental evolutionary approach and the lack of agility in core banking systems payment processing will start to impact the competitiveness of the bank. For banks that currently rely on that internal payments module of their core banking system be aware that the clock is ticking. The revolution is coming and you need to start planning a major payments system transformation programme within your bank.
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TECHNOLOGY
Finding strength in competition Tammo van Leeuwen, Market Strategy Director, CR2, explains how banks can turn fintech disruption on its head
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ight now, the global payments ecosystem is finding its way through a time of upheaval. Banks are being forced to look at each and every element of how they operate and deliver experiences to their customers in order to compete with fast moving fintech organisations who are increasingly wading into these once calm waters. In 2016, a study by PricewaterhouseCooper (PwC) found that top banking executives felt that up to 25 per cent of their business could be under threat from emerging fintech firms, a figure which is increasing year on year. The challenge for banks now lies in not only how to keep up with these nimble adversaries while managing a host of channels which are often governed by different technologies, but how to turn this situation on its head and use it as an opportunity to strengthen their offering, and their market position. For banks with vision, success lies in the ability to improve customer experiences while meeting and anticipating changing customer needs. By utilising the tools already at their disposal such as an invaluable store of customer information and an established channel network, banks can keep their customer base secure while enhancing their digital banking offering to compete directly with fintechs. Through the effective management of, and innovation through switching, as well as the introduction of convenient and revenue generating services such
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Embracing payments and banking technology is necessary to compete with fintechs, according to van Leeuwen.
as cardless remittance systems and dynamic currency conversion, banks can begin to make strides towards overcoming the disruption caused by new market entrants. Then, by enhancing their own digital offering and seriously thinking omnichannel, banks can not only retain their market share, but significantly improve their customer satisfaction and market position in the face of stiff competition.
ATM INNOVATION FOR SURVIVAL With global investment in fintech ventures tripling to $12.21 billion in 2014, before a bank begins looking at developing their digital banking offering to rival that of these competitors, it is important that they first look at managing the efficiency of their workhorse systems such as their ATM network. Any bank trying to make the
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most of their switching opportunities needs to ensure that they are employing a solution which is capable of not only quickly and accurately routing local and international transactions, but also providing advanced services and routing from numerous devices such as kiosk, mobile and internet payment. A solution such as CR2’s BankWorld will allow your bank to run a reliable, secure switch and take full advantage of the capabilities and services constantly being unveiled across the digital channels. As speed is also hugely important when competing with agile newcomers, an adaptive switching system which allows your team to manage the entire process independently and in-house can give your bank a clear advantage over fintech competition. What is important for banks to remember here is that their integrated self-service network is often their most powerful asset, as with it, they have the power to leverage channels which are not available to fintech competitors. Why stop at allowing customers to transfer money to a friend via mobile when a bank can take this one step further and allow the money to be withdrawn at a nearby ATM machine, simply. It is also important to bear in mind that modern switching solutions such as BankWorld offer so much more than simple transaction routing and payment processing. One such example is Dynamic Currency Conversion. DCC is a mutually beneficial service which allows banks to make themselves the beneficiary of foreign exchange transactions while also offering customers a convenient way of conducting transactions when abroad. By offering a value-added service such as DCC, banks are not only putting themselves in a position to generate additional revenue, but also providing a valued service to customers. Another prime example is Money Vouchers, a form of electronic cheque that allows banks to offer convenient money transfer services to their customers.
They are easy to use, password protected, the transfer is instantaneous and with international migrants remitting over $550 billion in 2015 alone, the opportunities for banks to generate revenue and provide a cost effective alternative for their customers really are endless.
THINKING DIGITAL TO MEET THE COMPETITION A recent Accenture survey of senior industry executives revealed that 72 per cent of those questioned feel their bank has only a fragmented or opportunistic strategy to dealing within digital innovation. Embracing payments and banking technology is truly the golden rule for banks facing stiff competition from fintechs and should be a cornerstone of any banks strategy. Offering a mobile and
regardless of how they choose to bank. This extension of the digital channels and their integration with the physical channels is by definition the real defining factor in how banks can stay ahead of fintech competition.
EXCEEDING EXPECTATIONS WITH OMNICHANNEL With global investment in financial technology ventures tripling to $12.21 billion in 2014, a clear signal is being seen within the financial services sector that a new era has arrived. The final strand in creating a differentiated experience is to offer customers something special, something unique, something which fintechs cannot, a truly omnichannel experience. By marrying the digital and physical channels through a solution such as BankWorld Omnichannel,
Embracing payments and banking technology is truly the golden rule for banks facing stiff competition from fintechs and should be a cornerstone of any banks strategy. internet banking solution such as CR2’s BankWorld Mobile, BankWorld Mobile App and BankWorld Internet which is convenient and up-to-date, providing services such as PFM, P2P transfers, Card on/off, segmentation and instant loans, is exactly what modern banking customers expect and can often prevent them switching to a fintech competitor. While taking advantage of the digital channels to appeal to tech-savvy modern banking customers, banks also have the opportunity to look at how to make these channels work for them. With advanced segmentation and personalisation capabilities, solutions such as BankWorld facilitate the integration of both original and new channels, presenting customers with actionable adverts, products and services which they can choose and receive instantly,
banks will be able to present a seamless experience to their customers regardless of how they choose to bank. By successfully utilising customer data and creating unique, personalised experiences across all channels, banks can not only generate revenue through cross selling and up selling opportunities which are actionable right there on the self-service channels, but also reduce costs and delight customers. When it comes to competing with fintech competition in fast growing markets, banks today need to look beyond asking how they can compete and retain their market share, but look forward and address how these agile competitors can force them to re-evaluate how they do business and to utilise each and every channel at their disposal to compete, and to succeed.
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GOVERNANCE
Raising the report standard Sayantan Banerjee, Head of Risk Management Practice for Middle East and Africa at SAS, discusses how the new standard for financial reporting will impact bank’s statements
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he International Financial Reporting Standard 9 (IFRS 9) replaces International Accounting Standard 39 (IAS 39), and will impact the banks’ financial statements and loss calculations the most. IFRS 9 will cover financial institutions across Europe, Middle East, Asia, Africa, and Oceania, with January 2018 as the compliance deadline for all the banks in those regions. Sayantan Banerjee discusses what that means for most institutions.
What exactly is IFRS 9’s mandate and how has it changed from the existing IAS39? IFRS 9 addresses three main aspects: first, classification of assets; second, measurement of the losses; and third, hedge accounting. In the recent changes, IFRS 9 will align classification and measurement of the losses with its business model, cash flows and future economic scenarios. For hedge accounting, IFRS 9 mandates newer disclosure requirements to connect the accounting part with the banks risk management activities in greater detail.
How will classification of assets impact banks in the region? [According to the IFRS website], classification will determine how
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financial assets and financial liabilities are accounted for in the financial statements and, in particular, how they are measured on an ongoing basis. IFRS 9 introduces a logical approach for the classification of financial assets based on the cash flow characteristics and the business model in which an asset is held. This single, principlebased approach will eventually replace the existing complex rule-based requirements that are difficult to apply. The new model also means that there will be a single impairment model which will be applied to all financial instruments. This will remove a source of complexity associated with previous accounting requirements.
In terms of measurement of losses, how does the IFRS 9 come into play? The methods of recognising impairments or booking losses as provisions have been under the scanner since the financial crisis. [According to the IFRS website] the delayed recognition of credit losses on loans and other financial instruments was identified as a weakness in existing accounting standards, especially when there were enough economic and predicative indicators to show that the future cash flows are not exactly how they seem. As part of IFRS 9, the IASB
Sayantan Banerjee, Head of Risk Management Practice for Middle East and Africa at SAS
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has introduced a new, Expected Credit Loss [ECL] impairment model that will require more timely recognition of losses. Specifically, the new Standard requires entities to account for ECL from when financial instruments are first recognised and it lowers the threshold for recognition of full lifetime expected losses. Every asset will now pass through three stages in their credit life cycle. [There is] stage one, where they are normal accounts with satisfactory repayment performance; stage two, where they show significant deterioration in their credit quality; and stage three, where they are recognised as non-performing exposures. The new standard will require the banks to account for a 12 month ECL for Stage 1 and a Life time ECL for Stage 2. These estimates must be forward looking and probability weighted.
How will this transition impact the banks in the region? Given the IFRS 9 requirements in terms of classification, measurement, and impairment calculation and reporting, banks should expect to be required to make some changes to the way they do business, allocate capital, and manage the quality of loans and provisions at origination. Banks will face data, modelling, reporting, and infrastructure challenges in terms of enhancing coordination across their finance, risk, and business units; integration and reconciliation of risk and finance data; gathering and maintaining historic data that will be required for modelling for the expected losses; lack of reliable macroeconomic indicators in [the region] that can be used for modelling, and the main aspect of modelling the losses at the facility level itself, mostly in terms of methodology and complexity.
What is your outlook? Addressing these challenges effectively will enable boards and
senior management to make betterinformed decisions, proactively manage provisions and effects on capital plans, make forward-looking strategic decisions for risk mitigation in the event of actual stressed conditions, and help in understanding the evolving nature of risk in the banking business. In the end, a thoughtful, repeatable, consistent capital planning and impairment analysis should lead to a more sound, lower-risk banking system with more efficient banks and better allocation of capital.
The methods of recognising impairments or booking losses as provisions have been under the scanner since the financial crisis. —S ayantan Banerjee, Head of Risk Management Practice for Middle East and Africa at SAS
The basics of IFRS 9 When the new requirements were first announced, Hans Hoogervorst, Chairman of the IASB, said that, “The reforms introduced by IFRS 9 are much needed improvements to the reporting of financial instruments and are consistent with requests from the G20, the Financial Stability Board and others for a forward-looking approach to loan-loss provisioning. “The new standard will enhance investor confidence in banks’ balance sheets and the financial system as a whole,” he said. There are four principles the IFRS highlighted that will shape balance sheets in the future. Ü Classification and measurement The new model of classification in IFRS 9 replaces complex existing requirements with a single, principle-based approach and a single impairment model. Ü Impairment The new impairment model will require more timely recognition of expected credit losses. The IASB has also announced its intention to create a transition resource group to support stakeholders in the transition to the new requirements. Ü Hedge accounting The new model represents a significant overhaul of hedge accounting including increased disclosure requirements for risk management activity that will in turn better reflect risk on financial statements. Ü Own credit IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss. Source: IFRS Foundation and IASB
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GOVERNANCE
Why is corruption rising? The answer is not simple, according to a recent report released by the United Nation Economic Commission for Africa
Rooting out corruption requires stronger institutions but also global cooperation, says the UNECA governance report (CREDIT: COSMA/SHUTTERSTOCK).
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ncreased corruption levels in Africa are based in three main motivators—institutional weakness, the continued decline of living standards for public servants, and the ‘blind eye’ turned to corruption by Western countries. This is according to the fourth African governance report by the Economic Commission for Africa (ECA) titled, Measuring Corruption in Africa: the international dimension matters, referred to as AGR IV. The report was launched during African Development Week in Addis Ababa in early April, to an audience of regional policymakers. The report argues that existing measures of corruption are predominantly perception-based, and that they ignore the international dimension of corruption. AGR IV also notes that alternative non-perceptionbased methods of measuring corruption remain inadequately developed, but calls on African countries to adopt approaches that are fact-based and built on more objective and quantitative criteria. Speaking at the launch during Development Week, Namibia’s Minister
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of Finance, Calle Schlettwein said, “Current indices on corruption do not present a reliable picture of the situation in Africa.” Schlettwein praised ECA for devoting efforts, time and resources to AGR IV, which he described as “an important report on corruption.” In particular, this edition of the report questions the credibility and reliability of corruption indices that focus on country ranking or naming and shaming, but offer minimal policy insights and practical recommendations to inform policy reforms. During the launch, ECA’s director for macroeconomics policy, Adam Elhiraika, said that the problem of corruption in Africa cannot be solved solely by Africans. “To combat corruption, Africa needs good governance institutions and policies that are not exclusively domestic-oriented, since corruption in the continent is not exclusively the making of Africans.” AGR IV included policy recommendations, categorised into four themes—enhancing ownership and participation in development planning; improving transparency
and accountability; building credible governance institutions; and improving the regional and global governance architecture. “There is a need to move the debate beyond the present corruption indicators and assess corruption in a broader African governance context. The levels of institutional weakness in many African countries make it possible for political leaders and officials to misuse national resources and abuse their power without being checked. In this regard, strengthening and building governance institutions is instrumental to tackling all governance challenges affecting the continent, including corruption,” the report stated. For ‘success stories’ of structural transformation, the report cited Mauritius and South Africa, both of which are highly developed but also suffered recent corruption scandals. Their success in this case seems to come from their diversified economies, as the report noted that services account for an estimated 65 per cent and 95.4 per cent of GDP in South Africa and Mauritius, respectively.
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OUTLOOK
Building back up Libya’s newly named representative government has just met to bring the country back from a stretch of instability that ground its economy to a halt—what is first on the agenda?
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he fate of Libya’s government and once powerful economy has been in limbo since the removal of Prime Minister Muammar Gaddafi in 2011. After a turbulent coup the country clocked in 104.5 per cent GDP growth in 2012 (World Bank) fueling optimism for a new chapter in one of Africa’s biggest oil producers. But conflict continued as several political factions fought for power, and Libya’s massive oil sector—accounting for 95 per cent of Government revenue—suffered. According to the African Economic Outlook (AEO), oil production fell during the first half of 2014 and GDP declined by 19.8 per cent, but production levels began to recover during the third quarter
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of 2014. At the time of AEO’s report (November 2015), the organisation forecasted a 14.5 per cent growth rebound in 2015, reliant on whether sparring political factions could agree to open some of the major oil terminals. That did not quite happen— the factions continued fighting, international oil prices stayed low, and despite the Government’s dysfunction, spending remained high, with public wages alone accounting for 60 per cent of GDP, according to the World Bank. However optimism returned this March, when political groups and international officials agreed on a interim representative government, the Government of National Accord (GNA), and its members arrived in Tripoli to begin to build Libya anew.
(CREDIT: TONELLOPHOTOGRAPHY/SHUTTERSTOCK)
At a high-level meeting in Tunis on 12 April, the United Nations Development Programme (UNDP) launched an initiative to assist with the stabilisation of Libya and its new unity Government, the UN Support Mission in Libya (UNSMIL). The initiative, called the stabilisation Facility for Libya, is an undertaking of the Libyan Government of National Accord, supported by UNDP and the international community, UNSMIL said in a statement. “The stabilisation Facility for Libya aims to support the Libyan Government of National Accord providing very visible and tangible quick-wins to the population at the local level,” UNSMIL said. There has been a lot of controversy in Libya over political control, but a much-
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lauded agreement establishing a GNA signed has provided a stretch of peace to rebuild what used to be a powerhouse oil producer. The World Bank, for one, is optimistic that there will be strong economic growth in 2016. At the UNSMIL meeting, the Deputy Prime Minister of the Libyan Presidency Council, Mousa Al-Koni, said, “The timing of this meeting is very important, especially after the Presidency Council moved to Tripoli. Achieving stability in Libya is an urgent need for the country and it is in the interest of all Libyans and the neighbouring countries. “Other officials at the meeting included Taher Al-Jehaimi, Minister of Planning in the Libyan Government of National Accord; Rüdiger König, Director General of Crisis Prevention, Stabilisation and Peace Building in the Federal Foreign Office of the Government of Germany; Dr. Christian Turner, attending on behalf of the UK Foreign and Commonwealth Office; Ali Al-Za’tari, UNSMIL Deputy Special Representative of the SecretaryGeneral; and Noura Hamladji, UNDP Libya Country Director. The rehabilitation of critical infrastructure destroyed by conflict will directly improve basic service delivery, the Mission noted. The stabilisation Facility will be Libyan-led, with the Prime Minister or his representative chairing the board jointly with the UN. Specifically, UNSMIL said the initiative will help to finance rehabilitation and repairs of key public infrastructure, including clinics, hospitals, police stations, water facilities, waste water treatment facilities, power grids and stations, among other improvements. “The stabilisation Facility can also support businesses that were destroyed by the conflict or degraded and are vital to whole communities, such as bakeries in places where they were destroyed
FIGURE 1. REAL GDP GROWTH Real GDP growth (0%)
North Africa
120 100 80 60 40 20 0 -20 -40 -60 -80
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(e) 2015(p) 2016(p) ©Source: AfDB, Statistics
Department AEO. Estimates (e); projections (p)
and people are forced to bring bread from elsewhere,” UNSMIL said. The interventions of the stabilisation Facility will be implemented by UNDP and will be selected based on needs assessment on the ground. The priorities will be jointly agreed among the Libyan Government of National Accord, local authorities, civil society and affected populations. The initiative will be initially limited to specific selected localities covering the east, west and south of Libya. If funding allows, it can expand its scope to all areas of the country, UNSMIL said.
THE ECONOMIC FUTURE OF LIBYA Aside from political instability and the drop in oil prices, there are foundational problems that Libya’s new government must address. “The issue of spatial inclusion is at the heart of the volatile transition that Libya has experienced since the 2011 revolution. In fact, spatial exclusion, at various socio-economic levels, has undermined any form of
national solidarity required for a move towards post-revolution democratic governance,” the AEO stated. The political context also left Libya without a clear fiscal strategy or budget policy for at least two years, leaving the country with a nearly 50 per cent budget deficit by the end of 2014. Coupled with a difficult business environment and falling foreign direct investment (after a dramatic boom in 2012), the economy has stagnated significantly. New economic growth will be spurred in part by a commitment to diversification, but also a return to the Government’s pre-conflict goals of privitisation for several state-owned entities. On top of that, the AEO noted that the financial sector is in a “rudimentary” state and has not gone through structural reforms after the revolution. There is currently a network of 15 commercial banks, the majority of which are stateor partially state-owned, accounting for 85 per cent of banking assets, four specialised credit institutions; five insurance companies; and a recently established stock market.
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Africa (%)
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THE VIEW
PICTURE OF THE MONTH “We need to look afresh at agriculture in Africa as a series of systems, and to see it not as a way of life, but a business,” African Development Bank Acting Vice-President for Operations, Kapil Kapoor said at the 2016 World Bank/IMF Spring Meetings’ “Future of Food” panel where Africa’s potential as an agricultural producer in the interconnected global economy was a key topic for discussion. Pictured, (L-R) Johan Rockström, Co-Founder, EAT Initiative; Bonnie McClafferty, Director, Global Alliance for Improved Nutrition; moderator Sam Kass, Senior Food Analyst, NBC and former White House Chef; Juergen Voegele, Senior Director, Agriculture Global Practice,World Bank; Kapoor and Juan José Freijo, Consumer Goods Forum and Global Head of Sustainability, Brambles. (CREDIT: L JOY ASICO/WORLD BANK/FLICKR)
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