#35 - June 2016

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ISSUE 35

ISSUE 35

Bank of Tanzania Governor Benno Ndulu

PLUS: 18 MARKETS

Ecobank—sticking with the strategy

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KENYA COUNTRY FOCUS Consumers’ confidence crisis

44

Get the next issue of Banker Africa before it is published.

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Dubai Technology and Media Free Zone Authority

Striking a balance Bank of Tanzania Governor Benno Ndulu

Striking a balance INVESTMENTS

Cameroon—lynchpin of stability?

21/06/2016 14:04

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21/06/2016 10:11

ISSUE 35

CONTENTS

Editor’s Letter Hello readers,

K

enyan institutions won big in our recent East Africa Awards (full list of winners on pg. 12) which made this month’s Kenya Country Focus all the more interesting to explore. While our East Africa winners were chosen by you, our readers, and in many ways represented things that could not be measured—most innovative, most socially responsible—our Kenya data told hard facts about how the banking environment impacted institutions throughout 2015. Our data team parsed out 13 top banks’ year-on-year performance, distinguishing who made gains and who made losses across assets, liabilities, revenue, net profit, return on assets and return on equity (pg. 30). The results show some wide-ranging trends but also some clear top performers. As Kenya Bankers’ Association CEO Habil Olaka said, there has been a crisis in confidence for Kenyan consumers—and now is the time to step up (pg. 28).

Speaking of the relationship between data and market sentiment, an interesting story is shaping up in mergers and acquisitions (M&A). Though Thomson Reuters data show a very quiet start to the year, an extensive recent survey by Herbert Smith Freehills could be summarised by one word—optimism. We explore the biggest M&A market trends for this year on pg. 20.

But before any of that, big news this month came out of Nigeria, where the Central Bank decided to float the currency in a decision many feel was long overdue (pg. 6). The market-driven currency’s impact on Africa’s biggest economy will surely be a significant story in the issues ahead.

Attracting private investment also plays as big a role as ever this issue, with Tunisia and Cameroon on fresh investment campaigns (pg. 34; pg. 44).

With that, I’ll let you get to reading.

Until next time,

24 IN THE NEWS 6 News analysis: Sink or swim— Nigeria’s floating currency

7

Essential financial news from around the continent

10 Spotlight: Togo HAPPENINGS 12 Gathering to celebrate the best

10

of the best The winners of our East Africa Awards revealed at a gala in Nairobi

OPINION 16 East Africa’s LNG—the global

race intensifies It’s becoming a tight race to attract investors, writes John Roper of Uniper Global Commodities

12

MARKETS 18 Sticking with the strategy

Ecobank Group CEO Ade Ayeyemi tells Banker Africa why he’s confident in Nigeria’s future

20 M&A for the opportunistic—

the future in Africa Despite a slump in the first quarter, optimism abounds amongst business leaders

18

COVER STORY 24 Striking a balance

SARAH OWERMOHLE http://cpifinancial.net/blog/author/78/sarah-owermohle BankerAFRICA

CPI Financial

Benno Ndulu, Governor of the Bank of Tanziana

COUNTRY FOCUS: Kenya 28 Coming back from a crisis in confidence Now is the opportunity for improvements, says KBA CEO Habil Olaka

30 Waking up the watchdogs

Our data team breaks down which Kenyan banks won and lost in 2015

28

www.bankerafrica.com

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ISSUE 35

CONTENTS

www.bankerafrica.com Chairman SALEH AL AKRABI Chief Executive Officer ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681

Managing Editor GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728

EDITORIAL editorial@cpifinancial.net

ADVERTISING sales@cpifinancial.net

Editor, Banker Africa SARAH OWERMOHLE sarah@cpifinancial.net Tel: +971 4 375 2527

Sales Director OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

Editors WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718

Business Development DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526

JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024

NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717

NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726

MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320

Contributors JOHN ROPER PROF. BADR EL DIN A. IBRAHIM TAMMO VAN LEEUWEN TONY BARRETT

NAPOLEON ESTAMPADOR nap@cpifinancial.net Tel: +971 4 391 4680

Sales Director JON DESPRES jon@cpifinancial.net Tel: +971 4 433 5321

36 POLICY SPOTLIGHT 34 Making private sector development

a priority IMF Mission Chief for Tunisia discusses the Fund’s $2.9 billion loan to the country

TRAILBLAZERS 36 Not just hot air

38

KivuWatt, a one-of-a-kind methane power plant, changes the grid in Rwanda

SECTOR FOCUS: Islamic banking 38 Micro-Takaful—a Sudanese invention

Prof. Badr El Din A. Ibrahim on constructing viable small-scale Takaful models

TECHNOLOGY 40 Upwardly mobile: the many faces of

44

mobile banking in modern Africa Banks need varied approaches to mobile users in Africa, writes CR2’s Tammo van Leeuwen

GOVERNANCE 40 Have you declared your offshore interests?

FNB’s Tony Barrett sheds light on how new tax regulations in South Africa will change compliance

INVESTMENTS 44 The ‘lynchpin of stability’—and growth?

48

Cameroon is mounting a significant investment campaign while balancing regional challenges

OUTLOOK 48 ‘When women win, Africa wins’

ON THE COVER: Benno Ndulu

The AfDB is leading a new $3 billion fund to close women’s access to finance

(UNU WIDER/FLICKR).

www.bankerafrica.com

www.bankerafri ca.com

ISSUE 34

ISSUE 33

ISSUE 35

ISSUE 34

Striking

34

Sudan?

Immunisation as economic foundation

Zone Authority and Media Free Dubai Technology

Edoh Kossi Amenounve, CEO of the Bourse Régionale des Valeurs Mobilières SA

PLUS:

22

COUNTRY FOCUS

CRDB’s winning strategy

Publication

27/04/2016 15:26

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POLICY SPOTLIGHT

Twin peaks in South Africa

34 34

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TRAILBLAZERS T RAILBLAZERS

Immunisation Imm mmun unis issat atttio a io io on n as as a an n economic foundation eco cono nomic miic ffo m oun und da ati tion on

Striking a balance

Bank of Tan zania Go vernor Ben no

Ndulu

Get the next issue of Banker Africa before it is published.

Full details www.bank at: erafrica.co m

PLUS: 18 MARKETS

ETS

23/05/2016 12:27

Ecobank—stick ing with the

strategy

28

KENYA

COUNTRY Consumers’ confidence FOCUS crisis

Authority

TRAILBLAZERS an

44

INVESTMEN

Cameroon—lyn TS chpin of stabilit y?

Log on to www.cpifinancial.net for news, polls, events, analysis, blogs, features, commentary and more.

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Head of Contract Publishing Contract Publishing & Business Development Editor VINOD THANGOOR SARAH SPENDIFF vinod@cpifinancial.net sarah.spendiff@cpifinancial.net Tel: +971 4 391 3725 Tel: +971 4 391 3729 Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

Online Editor MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

Senior Designer FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

Online Content Manager SIYA PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722

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Data Analyst NADINE ABOUZEID nadine@cpifinancial.net Tel: +971 4 433 5322

Events Manager NATALIA KAILA natalia.kaila@cpifinancial.net Tel: +971 4 365 4538

Finance Manager UMAIR AHMED KHAN, ACA umair@cpifinancial.net Tel: +971 4 391 3727

Administration & Subscriptions enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709 CPI Financial FZ LLC P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576 www.cpifinancial.net

Free Zone

A new dawn for

and Media

COUNTRY FOCUS

A CPI Financial Publication

A CPI Financial

24

Dubai Technology

Africa

What’s next for Barclay’s Africa?

Benno N dulu

Commission for

THE MARKETS

Dubai Technology and Media Free Zone Authority

Benno Ndulu

of the Economic

16

A new class for BRVM

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ry Executive Secreta Carlos Lopes, UNCommission for Africa of the Economic

PLUS:

by UNU W ider/Flickr

Governor

Executive Secretary

A call for boldness

FOLLOW US ON TWITTER:

@bankerafrica

Bank of Tanzania

Carlos Lopes, UN

www.bankerafrica.com

a balance

A new class for BRVM Edoh Kossi Amenounve, CEO of the Bourse Régionale des Valeurs Mobilières SA

A call for boldness

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©2016 CPI Financial. All rights reserved.

No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor. Registered at the Dubai Media City Printed by United Printing & Publishing - Abu Dhabi, UAE

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23/06/2016 14:43

The future is Africa‌. banks can benefit but criminals shouldn’t.

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* FT, 19 May 2015 - Foreign direct investment in Africa surges ** Value of banking fraud calculated as a percentage of total pre-tax profits of tope 1,000 banks in 2014, according to data from The Banker

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NEWS ANALYSIS

Sink or swim—Nigeria’s floating currency In a long-awaited response to the spiraling economy, the Central Bank of Nigeria has floated the naira

C

entral Bank Governor Godwin Emefiele announced in a speech on 15 June that the struggling naira would now be market-driven, after months of economic slowdown and foreign reserve depletion in the country. He also introduced a new foreign exchange (FX) framework to help boost liquidity in the market but also reduce exchange-rate volatility.

For 16 months the Nigerian currency, the naira, has been pegged at 197 to the US dollar while trading up to 370 to the dollar on the parallel market, drawing some criticism of the monetary policy.

Emefiele said that the CBN’s new market will operate as a single market structure through an autonomous window, with the CBN participating through “periodic interventions” to buy or sell foreign exchange (FX).

The CBN also plans to offer nondeliverable over-the-counter (OTC) nairasettled Futures. Inter-bank trading under the new guidelines will begin on 20 June and the tenors and rates for the OTC Nairasettled FX Futures will be announced on 27 June. To encourage market liquidity, Emefiele said the CBN may also offer longtenored FX Forwards of six to 12 months, or any tenor, to authorised dealers, but Sale of FX Forwards by these dealers to end-users must be trade-backed, with no pre-determined spreads.

6 page 6 News Analysis.indd 6

Nigeria’s Central Bank Governor Godwin Emefiele announced policy changes to meet exchange rate pressures. (CREDIT: IMF STAFF PHOTO/STEPHEN JAFFE/FLICKR)

“This is an entirely new product in the Nigerian Foreign Exchange Market, which would help moderate volatility in the exchange rate by moving nonurgent FX demand from the Spot to the Futures market,” Emefiele said.

Though the Nigerian Government has resisted floating the naira, Emefiele acknowledged that the triple shocks of the crude oil’s price decline, the global economic slowdown, and the normalisation of monetary policy by the US Fed dealt a blow to the currency. He said that the CBN witnessed a decline in Foreign Exchange Reserves from about $42.8 billion in January 2014 to about $26.7 billion as of 10 June 2016.

Razia Khan, Chief Economist for Africa at Standard Chartered, said that rising price pressures in Nigeria were likely instrumental in the authorities’ changed stance on FX policy.

“Nigeria’s fixed exchange rate regime had merely pushed activity to the parallel market, which is prone to overshooting, less susceptible to formal policy tightening, and likely played a significant role in exacerbating current price pressures,” Khan said.

“The challenge for the authorities is how to go about normalising the FX regime, and more broadly, activity—in their bid to resolve fuel and other supply bottlenecks that have constrained growth while driving inflation higher,” she added.

Though the exchange rate has been relatively stable since February, the CBN’s foreign exchange earnings have fallen from about $3.24 billion monthly to current levels of below a billion dollars per month. However Emefiele said that the demand for foreign exchange has risen significantly, with the average import bill at NGN 917.6 billion a month ($4.6 billion) in 2015 compared to NGN 148.3 billion a month ($745 million) in 2005.

“The Central Bank is strongly determined to make this market as transparent, liquid, and efficient as possible,” Emefiele said.

www.bankerafrica.com

23/06/2016 09:11

IN THE NEWS

ON THE RECORD

RATINGS REVIEW BANKS AND BUSINESSES Standard & Poor’s (S&P) lowered South Africa’s Lion of Africa Insurance to ‘B-‘ with a negative outlook, citing weak underwriting risk controls and its profit loss at end-2015.

Moody’s Investor Services reviewed three Nigerian banks, affirming the standalone ratings of b2 for Access Bank and b3 for Sterling Bank but downgrading Access’ local and foreign currency ratings to B1 and B2 from Ba3 and B1, respectively.

It also downgraded Bank of Industry’s issuer rating to B1 from Ba3; all ratings are stable.

We have faithfully honoured all Treasury Bills [and] all debt instruments that we have issued.

We have not heard the market complaining.

– Zimbabwe Minister of Finance and Economic Development talking to Parliament about the country’s cash crisis and its causes.

A QUICK WORD NMB pays Tanzanian government TZS 16.5 billion in dividends

Moody's also downgraded Banco Angolano de Investimentos S.A.’s global foreign currency deposit ratings to B2 from B1 following the sovereign downgrade (below).

SOVEREIGNS S&P revised its outlook on Egypt’s ‘B-B’ rating to negative on forecasts of a widening current account deficit and slow improvement on the fiscal consolidation front.

Several oil-exporting countries hit hard by the price slump were downgraded by Moody’s this month: Angola was bumped to B1 from Ba2 with a negative outlook; Nigeria to B1 from Ba3 with a stable outlook; Gabon to B1 from Ba3 with a negative outlook; and Republic of Congo to B2 from B1, also negative.

Moody’s said in an annual report on Mauritius that its resilient economy and ample liquidity support its Baa1 rating with a stable outlook.

Moody's also affirmed Senegal’s B1 rating with a positive outlook, highlighting its political and macro-economic stability.

S&P affirmed South Africa’s ratings with a negative outlook, noting low GDP growth and banks’ challenges but expressing optimism on government policies.

The NMB team hands a symbolic cheque over to represent their solid profits.

Tanzania’s National Microfinance Bank Plc (NMB) has handed over TZS 16.5 billion dividend to the government as part of the banks profit after tax for 2015.

BMIO becomes Al Salam Bank-Seychelles and resumes operations Al Salam Bank-Bahrain (ASBB) announced that BMI Offshore Bank Seychelles (BMIO) has been successfully handed over to shareholders after being placed under administration by the Central Bank in 2014.

Mediterrania Capital Partners invests in MedTech Group Mediterrania announced on 7 June the acquisition through its second fund, Mediterrania Capital II, of a stake in MedTech Group, a Moroccan IT business system integrator.

Emirates NBD says ‘no comment’ on Barclays Egypt rumours In a statement to Dubai Financial Market (DFM), Emirates NBD said it had ‘no comment…at this stage’ on press reports claiming the bank was in negotiation to buy Barclays Egypt.

For these stories and more, visit www.bankerafrica.com

www.bankerafrica.com

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7 23/06/2016 09:23

IN THE NEWS

Quantum Global establishes Mauritius presence

A

Jean-Claude Bastos de Morais, Founder and Chairman

ngolan investment group Quantum Global has established roots in Mauritius with 11 new hires and an office to manage investment vehicles from the island. Besides senior fund managers, the new staff includes experts in healthcare, hospitality and mining, to correlate with Quantum’s five sector-focused private equity funds.

“Despite the global economic volatility, our business has seen considerable growth on the continent over the last few years which has led us to formally set up operations there,” Jean-Claude Bastos de Morais, Founder and Chairman, said. We have launched a number of private equity vehicles in Mauritius and our team of highly experienced individuals will act as a catalyst to increase the momentum of our business at a time when we are experiencing significant overseas interest in African investments.”

Uber Kenya and Sidian Bank launch KES 10 billion driverpartners programme In Kenya, Uber and Sidian Bank have partnered to launch an Uber Vehicle Solutions Programme, including a vehicle finance component through Sidian Bank and a vehicle leasing solution through Zohari Leasing. Uber, a private taxi app that employs drivers as independent contractors, launched in Kenya last year and recently celebrated one million rides.

Sidian Bank said that the initiative is valued at a total of approximately KES 10 billion ($100 million). According to Nate Anderson, Acting General Manager for Uber in Kenya, the Vehicle Solutions Programme follows similar offerings that have recently been launched by Uber in partnership with WesBank in South Africa.

“We are glad to be part of this deal, which is enabling enterprises to grow. In addition to financing, we will also provide technical assistance to the beneficiaries of this arrangement. This deal is part of our efforts to consolidate our new positioning that is focused on enabling individuals to own their tomorrow,” Sidian Bank CEO Titus Karanja said.

English court rejects Libyan companies’ $15 million fine appeal In Catalyst Managerial Services (CMS) v Libya Africa Investment Portfolio (LAIP), the High Court of England & Wales has backed CMS, ordering LAIP, a subsidiary of the Libyan Investment Authority, to maintain $15 million in the Court’s account as security if it is going to defend claims brought against it by CMS. At a hearing on Tuesday 18 May 2016, the Court rejected LAIP’s arguments on why the $15 million figure should be reduced, insisting instead that the full sum must be maintained.

On 15 July 2015, the Court ordered LAIP to pay $15,422,924 to CMS in respect of unpaid invoices. CMS is now preparing for a full hearing on its claims, including its unpaid invoices claims, in April 2017. It alleges unpaid invoices from LAIP of hundreds of millions, as well as damages for wrongful termination of management services agreements. The Court also gave leave on Tuesday for CMS to plead additional claims against LAIP in respect of the same facts, increasing CMS’s prospects of success against LAIP.

Old Mutual Investment Group increases equity stake in UFF African Agri Investments Old Mutual Investment Group struck a deal to increase its equity stake in African agriculture investment group, UFF African Agri Investments, to 49 per cent. The Group said it expects investment opportunities of up to $500 million into African farmland over the next three years.

Diane Radley, CEO of Old Mutual Investment Group sad this was a natural progression for the two organisations. “As the largest manager of real assets in Africa, we have a deep belief in the opportunities in agricultural investing across the African continent. Agriculture as an asset class has already gained huge momentum globally, but is still in its infancy in Africa. This presents a significant investment opportunity for both local and international investors,” she said.

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www.bankerafrica.com

15/06/2016 09:07

Dubai Chamber opens international office in Maputo

O

n a trade mission to Mozambique and South Africa, the Dubai Chamber of Commerce and Industry opened a Maputo, Mozambique branch, its third office in Africa after Accra and Addis Ababa. The Chamber and Mozambique Prime Minister Carlos Agostinho do Rosário both said in statement that they it hope this would strengthen economic ties between the two countries.

The branch was inaugurated by Majid Saif Al Ghurair, Chairman, Dubai Chamber who also led the trade mission.

At the event, he said that Dubai’s non-oil trade with Mozambique last year stood at $197 million, with much potential to grow. There are also 29 companies registered under Dubai Chamber membership out of the 12,000 African companies operating in the emirate, Ghurair said.

(L-R) Asim Mirza Al Rahmah, UAE Ambassador to Mozambique, Majid Saif Al Ghurair, Chairman, Dubai Chamber, and Ernesto Max Tonela, Mozambique Minister of Industry and Trade.

AfDB approves $150 million LOC to Nigeria’s United Bank for Africa The Board of Directors of the African Development Bank Group (AfDB) through its private sector window has approved a $150 million line of credit (LOC) to United Bank for Africa Plc (UBA) in Nigeria. In 2009, the AfDB provided emergency liquidity facilities to UBA to address the surging liquidity constraints during the economic crisis.

In a statement, the development bank said that the LOC will help finance infrastructure and SME projects, including women-owned enterprises in Nigeria, as well as power sector infrastructure. According to the AfDB, the power sector financing gap in Nigeria remains enormous and almost 50 per cent of its population does not have access to electricity.

MCB Equity Fund exits Speedy France Mauritius based MCB Equity Fund has successfully exited Speedy, an automotive services company in France. Bridgestone EMEA, a subsidiary of the Tokyo-based Bridgestone Corporation, has acquired 100 per cent of Speedy, subject to approval by the French regulatory authorities.

The seller was advised by MCB Capital Markets (Selvinah Vydelingum, Rony Lam and Joël Lambert) and Raphaël Financial Advisory. In 2011, MCB Group financed the acquisition of Speedy in a blend of debt and equity through its ever green private equity fund, MCB Equity Fund Limited, and its banking arm, MCB Limited.

“This transaction demonstrates MCB’s ability to support complex cross-border transactions and adds to the growing credentials of our Private Equity, advisory and International Banking teams,” Pierre Guy Noël, Chief Executive, MCB Group, said.

Antoinette Sayeh leaving the IMF

A

ntoinette Sayeh, Director of the African Department at the International Monetary Fund (IMF) will leave the Fund on 31 August 2016. Sayeh joined the IMF in July 2008, and she and her team contributed to the reform of the Fund’s concessional lending facilities in 2010, subsequently reforming of the Fund’s debt limits policy. More reforms have since followed, including the changes that enabled the Fund to provide emergency financing and debt relief to the three countries hit by the Ebola crisis in 2014.

“As the Director of the African Department for the past eight years, Antoinette has been enormously influential in cementing the IMF’s relations with our African member countries,” IMF Managing Director Christine Lagarde said. “Antoinette navigated these and later challenges with her trademark skills of quiet, effective diplomacy, deep analytical capability, and an unrivalled understanding of the challenges facing her continent.”

Antoinette Sayeh at the IMF’s Spring Meeting (Credit: Roxana Bravo/IMF Photo).

www.bankerafrica.com

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9 23/06/2016 09:28

NEWS SPOTLIGHT TOGO

Togo and China work towards strengthening ties President Faure Gnassingbé made a state visit to China from 29 May to 2 June under the pretense of enhancing the partnership between the two countries. Gnassingbé met with Chinese President Xi Jinping to discuss agricultural, security and ‘people-to-people’ cooperation, according to China’s state news agency, Xinhua.

The two also discussed the outcome and strategic goals of the Forum on China-Africa Cooperation (FOCAC) in Johannesburg in December 2015. Gnassingbé pledged to welcome Chinese companies into the country through favourable investment and business policies. The two leaders ended the visit with the ceremonial signing of a cooperative agreement.

Togolese President Faure Gnassingbé with Afreximbank President Dr. Benedict Oramah after their meeting in Lomé.

Togo Becomes Afreximbank’s 40th participating state

T

ogolese President Faure Gnassingbé announced Togo’s agreement with the African Export-Import Bank (Afreximbank), making the country the 40th African state to officially join the continental trade finance institution as aparticipating state.

Gnassingbé made the announcement along with Afreximbank President Dr. Benedict Oramah, saying that the country’s decision to join Afreximbank was guided by the fact that the Bank’s strategy, especially its intraAfrican trade vision, was consistent with Togo’s vision and economic development needs.

He said that Togo’s intention was to grow its local private sector, increase energy production capabilities and develop much-needed transport and logistics infrastructure to be linked to the Lomé port and airport to serve regional trade needs. Togo is now eligible to benefit from Afreximbank’s trade finance services and programmes.

“Given its strategic location in the region, Togo has the potential to become a leader in the services industry and to become a regional logistics hub for the trade of goods and services across Africa. Togo is therefore a very important country in the Afreximbank’s Intra-African Trade Strategy,” he said. Dr. Oramah urged Togo to move quickly to conclude the ratification of the Agreement as required under the terms of the 1993 Abidjan Agreement on the Establishment of the Bank.

10

Ecobank and Old Mutual enhance strategic agreement Togo-based Ecobank Transnational Incorporated (ETI), parent company of the Ecobank Group, and Old Mutual Emerging Markets announced on 20 May plans to strengthen ties between the and Old Mutual’s insurance and asset management business.

The two already had a bancassurance partnership in place, but Ecobank Group CEO Ade Ayeyemi said plans for the integrated model include providing access to Old Mutual solutions for Ecobank’s banking operations across selected countries. “This is a productive and valued partnership between two pan-African institutions to provide complete financial services solutions to our customers,” he said.

Ralph Mupita, CEO of Old Mutual Emerging Markets, said, “It is in our mutual interest to ensure that this alliance grows from strength to strength, as we now look to complement Ecobank’s range of banking services to its customers with Old Mutual’s trusted financial products across the Ecobank network on the continent.”

(L-R) Ecobank Group CEO Ade Ayeyemi and Old Mutual Emerging Markets CEO Ralph Muita.

www.bankerafrica.com

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23/06/2016 09:29

Celebrating

the best of the best in West

Africa!

STARTS

Preparation and research is underway for the Banker Africa Awards.

The Awards are grouped in four regional categories: North Africa, Southern Africa, East Africa and West Africa.

AUGUST 2016

To learn more about the Awards process, please email events@cpifinancial.net

CPI Financial The professional face of financial media CPI Financial is Africa and the Middle East’s leading financial publisher with a portfolio of market-leading products educating and informing readers about the latest trends and developments in banking and finance as it affects them.

CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net

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HAPPENINGS

Gathering to celebrate the best of the best The winners of the third Banker Africa East Africa Awards were revealed at a gala dinner held in Nairobi, Kenya this May

T

he third annual Banker Africa East Africa Awards garnered a record-breaking 23,500 votes from the financial services community of the region, and brought more than a hundred attendees to its first gala dinner in Nairobi, Kenya.

Top individual awards went to Joshua Oigara, Group Chief Executive Officer of the Kenya Commercial Bank Group, who was named CEO of the Year; and to Dr. Charles Kimei, CEO and President of CRDB Bank, Tanzania, who received the Lifetime Achievement Award in recognition for his more than 30 years of achievements in the financial services sector.

Speaking on the Award, Dr. Kimei said he owed the achievement to the CRDB Bank team as well as the customers, his family, and fellow Tanzanians.

“I am proud to have been associated with CRDB Bank in its quest to emerge as the leading financial services provider in Tanzania and beyond. “I thank the entire Tanzania banking and financial industry for this recognition and goodwill. I also owe this achievement to the unstinted support from the 2,000-plus colleagues at CRDB Bank,” he said. “I look forward to achieving greater success for CRDB Bank and the Tanzania nation in future.”

Dr. Charles Kimei accepted his Lifetime Achievement Award from Robin Amlôt, CEO of CPI Financial (L) and Sarah Owermohle, Editor of Banker Africa (R).

12

Joshua Oigara, who has led the KCB Group through several years of regional expansion as well as recent local events such as the Group’s receivership of Chase Bank, also attributed his Award— and the other three that KCB Group took home that night—to the bank’s focus, “These awards are a confirmation of our continued commitment to driving economic transformation and financial inclusion in the region,” he said.

Among the big winners identified by the readers of Banker Africa and the online community of financial news website www.cpifinancial.net, KCB bagged three Awards.

Attendees peruse the most recent issue of Banker Africa before the awards are announced.

www.bankerafrica.com

page 12-15 happenings EA AWARDS.indd 12

23/06/2016 09:36

Institutions taking home two Awards each included Bank of Khartoum, Barclays, CBA Group, Co-operative Bank of Kenya, Diamond Trust Bank, Ecobank, Equity Bank and NIC Bank. Different units of Standard Chartered and Stanbic also won recognition, with those groups also taking three Awards each.

In total, 24 institutions across six countries—Kenya, Tanzania, Uganda, Rwanda, Sudan and Ethiopia—shared 37 corporate Awards.

Among the 140 bankers in attendance at the Banker Africa East Africa Awards were guests of honour Mohammed Nyaoga, Chairman of the Central Bank of Kenya and Habil Olaka, CEO, Kenya Bankers’ Association.

Olaka said that during 2015, the banking industry in Kenya collectively advanced over KES 2.29 billion to various sectors of the economy, a 17.5 per cent increase over the year prior. In particular, SME lending saw strong growth. He added that the recent crisis in banking confidence has lent itself to a “proactive approach” by the KBA to cultivate a culture of governance and transparency.

In his keynote, Nyaoga also addressed recent events since Governor Njoroge took office in 2015. “At CBK we will ensure that we have better financial reporting standards and the auditors now have a big job to do to make sure that financial reporting is in line with best practice,” he said. “For CBK, this is nothing new. We are not putting in place new laws. All we are doing is enforcing the law that has existed in our books for a very long time.”

He further highlighted progress made in the Kenyan and East African banking sectors.

“Over the years, Kenyan banking and financial institutions—alongside those recognised tonight from Sudan, Tanzania, Rwanda, Uganda and Ethiopia—have risen to become integral parts of this region’s development,” Nyaoga said.

However, he continued, after years of exponential growth in the region, fresh challenges have made it important that growth be diversified and inclusive.

“It is important, now more than ever, to recognise these institutions that

(L-R) Habil Olaka, CEO of the Kenya Bankers’ Association, Mohammed Nyaoga, Chairman of the Central Bank of Kenya, and Robin Amlôt, CEO of CPI Financial.

are maintaining their core values and leading through sustainable growth and strong principles. Good governance is a journey, one that leads to improved profitability, higher dividends, and even happier customers,” he said.

Kenyan institutions swept many of the regional awards, though Bank of Khartoum took ‘Best Islamic Bank in East Africa’, while ‘Best Corporate Bank’ and ‘Best Investment Bank’ went to Standard Chartered and Barclays Africa, respectively.

“Each year, the Banker Africa East Africa Awards identify and reward excellence in financial services. We aim to promote best practice and offer recognition to the key players working to help create a prosperous diversified future for the region’s economies,” said Robin Amlôt, Chief Executive Officer of CPI Financial. “Winning one of our awards reflects the opinion of the financial services industry across the region and our winners may be justly proud of their achievements and that their peers see them as market-leaders.” cont. overleaf

Abdi Mohamed, Managing Director of Barclays Bank Tanzania (which won Best Commercial Bank Tanzania), shares a laugh with Habil Olaka, CEO of the Kenya Bankers’ Association.

www.bankerafrica.com

page 12-15 happenings EA AWARDS.indd 13

13 23/06/2016 09:36

HAPPENINGS

cont. from page 13

The Banker Africa East Africa Awards 2016 Lifetime Achievement Dr. Charles Kimei - CEO of CRDB Banker of the Year Joshua Oigara - CEO of KCB Best Customer Service – Kenya NIC Bank Best Customer Service – Tanzania Standard Chartered Tanzania Best Microfinance Bank – Kenya KWFT Bank Best Microfinance Bank – Tanzania Ecobank Tanzania Best SME Bank – Kenya CBA Group Best SME Bank – Tanzania NMB Best Emerging Bank – Kenya Sidian Bank Best Emerging Bank – Tanzania Ecobank Tanzania Best Corporate Bank – Tanzania Bank M Best Corporate Bank – Uganda Standard Chartered Uganda Best Corporate Bank – Kenya CFC Stanbic Best Commercial Bank – Kenya KCB Best Commercial Bank – Tanzania Barclays Bank Tanzania Best Retail Bank – Uganda Stanbic Bank Uganda Best Retail Bank – Tanzania CRDB Bank Best Retail Bank – Kenya

Co-operative Bank of Kenya Best Investment Bank – Kenya Dyer & Blair Investment Bank Best Investment Bank – Tanzania Stanbic Bank Tanzania Best Bank in Sudan Bank of Khartoum Best Bank in Rwanda Bank of Kigali Best Bank in Ethiopia Commercial Bank of Ethiopia Best Mobile Banking Service Equity Bank – Equitel Best Online Platform – Kenya Diamond Trust Bank Kenya Best Core Banking System Temenos Best Payment Solution Provider BPC Banking Technologies Best Corporate Governance Bank I&M Bank Best Online Platform – East Africa Diamond Trust Bank Most Innovative Technology Provider Entersekt Most Innovative Bank Equity Bank Best Islamic Bank – East Africa Bank of Khartoum Best Retail Bank – East Africa KCB Group Best Customer Service – East Africa NIC Bank Best SME Bank – East Africa CBA Group Best Corporate Bank – East Africa Standard Chartered Best Commercial Bank – East Africa KCB Group Best Investment Bank – East Africa Barclays Africa Group Most Socially Responsible Bank Co-operative Bank of Kenya Foundation

14

In his keynote address, CBK Chairman Mohammed Nyaoga focused on how good governance can improve banking.

(L-R) Robin Amlôt, CEO of CPI Financial, Nancy Mwangi, Head of SME and Esteemed Banking at KWFT Bank, Sarah Owermohle, Editor of Banker Africa and Mwangi Githaiga, Managing Director at KWFT Bank.

www.bankerafrica.com

page 12-15 happenings EA AWARDS.indd 14

23/06/2016 09:36

Joshua Oigara accepted his CEO of the Year Award from Robin Amlôt, CEO of CPI Financial, and Sarah Owermohle, Editor of Banker Africa.

(L-R) Robin Amlôt, CEO of CPI Financial, Titus Karanja, CEO of Sidian Bank, Sarah Owermohle, Editor of Banker Africa and Theo Osogo, Head of Treasury at Sidian Bank.

The KCB team celebrates their four wins.

www.bankerafrica.com

page 12-15 happenings EA AWARDS.indd 15

15 23/06/2016 09:36

OPINION

East Africa’s LNG—the global race intensifies The potential in the region is indisputable, but it’s a tight race for investors with many options, writes John Roper, Head of Middle East at Uniper Global Commodities SE

T

he vast and well-documented gas reserves in East Africa continue to whet the appetite of investors along the New Silk Road—stretching from Beijing to Lagos—especially as the global population and subsequent energy demand soars. China, Japan, India and the Middle East are particularly hungry for liquefied natural gas (LNG) and so the intensifying global competition amongst LNG exporters means East Africa’s window of opportunity is shrinking, or at least certainly facing stiff competition.

Tanzania and Mozambique—home to East Africa’s largest natural gas reserves and with a combined capacity of nearly 250 trillion cubic feet (tcf)—must quicken their pace as the race for supply contracts accelerates. East Africa benefits from convenient geography, with the coastline acting as a springboard to market to rising demand in the Middle East, India, China, Southeast Asia and Northern Europe.

Global LNG production hit 250 million metric tonnes (m/t) last year, rising by four million m/t from 2014, according to a Wood Mackenzie report. The consultancy cautions that

16 page 16-17 Opinion.indd 16

There is major incentive for big gas deals in Tanzania and Mozambique, says John Roper.

www.bankerafrica.com

21/06/2016 14:12

The incentive for Mozambique to nurture political stability and lure more investors to Maputo is clear; the country could earn up to $5.2 billion a year by 2026 from LNG exports –­ John Roper

a further 125m m/t of LNG under development means that the majority of market growth will come post2016. East Africa’s plans to ramp up its LNG exports in the early 2020s will face strong competition from both emerging and established exporters, with everyone jostling to lock in Asian clients where possible.

Qatar remains the world’s biggest LNG exporter, while Iran, home to the world’s second largest gas reserves, has started increasing its marketing efforts in Europe, India and Pakistan after the Western-imposed sanctions were lifted on 17 January. Russia, a longtime and reliable European supplier, is also focusing on Asian clients, whilst Australia is in the running to displace Qatar as the world’s largest LNG exporter by 2018. Westwards, the first LNG exports from Sabine Pass, in the US, marked a milestone in February in the country’s journey from an energy importer to an exporter. In addition, China and some Middle East energy producers—notably Kuwait—are looking to possibly develop their shale gas reserves, which, if successful, could narrow the LNG import market over the medium to long-term.

Amid this abundant supply, natural gas prices are unlikely to recover in 2016, according to 69 per cent of respondents to a GI Industry Survey in January.

Despite this hefty competition, investors are still eager to develop infrastructure that leverages East Africa’s coveted gas assets. The Dubaibased Dodsal Group has discovered natural gas reserves estimated at 2.7 tcf in the Ruvu Basin near Dar es Salaam, that they estimate to be the country’s largest onshore gas discovery with a value of $8-$11 billion. The company has earmarked $300 million to invest in Tanzania over the coming two years.

State-run Tanzania Petroleum Development Corporation (TPDC) is working alongside Shell, Statoil, Exxon Mobil and Ophir Energy after securing a land deal for a LNG plant on Tanzania’s coastline in January. The plant is well-positioned to utilise the country’s offshore gas reserves when it starts up in the early 2020s.

The national significance of Tanzania’s LNG export market is vast; the country’s central bank expects LNG to be the main driver of the country’s transformation into a middle-income

nation by 2025. This is a valid target considering that the International Monetary Fund (IMF) expects Tanzania to continue reporting the seven per cent growth it achieved in 2015. Tanzania will also partly help fill the economic vacuum left by the weak economic performances in historical powerhouses Nigeria and South Africa. Flows of crossborder trade, investments, human capital and politics are entrenched throughout Africa’s economies and Tanzania’s bullish streak could act as a support for the continent’s sliding performance. Low commodity prices mean the IMF has put Africa’s 2016 growth rate at three per cent, down from the initial 4.3 per cent outlined last October.

Meanwhile, the incentive for Mozambique to nurture political stability and lure more investors to Maputo is clear; the country could earn up to $5.2 billion a year by 2026 from LNG exports, creating over 70,000 jobs in its gas sector.

The country’s national oil company, ENH, as well was South Africa’s SacOil Holdings, China Petroleum Pipeline Bureau and China Petroleum & Technology Development Corp, are pushing ahead with a joint venture to build a $6 billion natural gas pipeline by 2020. The 2,600 kilometre gas pipeline will run from Rovuma Basin in northern Mozambique to South Africa’s Gauteng province, where there will likely be offtakes for others in the South African Development Community— Botswana, Namibia, Zimbabwe, Angola and Malawi to name a few.

Mozambique supplies two-thirds of South Africa’s current consumption and is also eyeing supply deals with India.

The vast potential of East Africa’s LNG reserves faces little debate. But, Tanzania and Mozambique must quickly court investors to leverage their assets and secure clients in Africa and along the New Silk Road before other LNG exporters cross the finish line.

www.bankerafrica.com

page 16-17 Opinion.indd 17

17 23/06/2016 09:41

MARKETS

Sticking with the strategy Ade Ayeyemi, Ecobank Group CEO, told Banker Africa that despite recent struggles, Nigeria is ready to recover growth—and so is Ecobank

P

rior to posting its 2015 annual results earlier this year, Togo-based Ecobank Transnational Incorporated (ETI) Group issued a profit warning citing the difficult macroeconomic challenges, including lower crude oil prices, depreciating currencies and monetary and fiscal bottlenecks, factors which hit Nigeria—Ecobank’s largest market with a 40 per cent share of operations—particularly hard.

Overall, Ecobank’s pre-tax profit dropped 53 per cent from one year to the next, from $520 million to $205 million.

ETI attributed this in large part to higher impairments on non-performing loans— impairment losses rose 137 per cent from $267 million to $532 million. This while loans to customers fell nine per cent from $12.3 billion to $11.2 billion.

However gross revenue across the Group grew by 11 per cent and total assets rose by four per cent. In a statement at the time of the report, Ecobank stressed that its diversified operations would pull the Bank through the difficult macroeconomic environment. As of 31 December 2015, Ecobank had $23.6 billion in total assets and $2.5 billion in total equity.

Speaking to Banker Africa , Ade Ayeyemi, who assumed the position of Group CEO in September 2015, appeared confident that Nigeria, and Ecobank, would weather the current storm well.

“There are challenges Nigeria is going through. But those challenges,

18 page 18 Ecobank Nigeria.indd 18

Ade Ayeyemi, Ecobank Group CEO, is confident in Nigeria’s long-term prospects (Credit: Sébastien Gracco de Lay).

the way we look at it—a bank is in a country for a long time. The beauty of our business, and being present in 36 other countries, is the diversification that we have,” he said, noting the strong growth being posted by neighbouring countries such as Cameroon, Ghana, and Côte d’Ivoire.

However Nigeria is by far Ecobank’s biggest market, and though the Bank’s presence is strong in many western and central African countries, it is still modest further east. On the question of whether the Group is looking to balance its Nigeria share with other markets, Ayeyemi again underlined the capacity in Nigeria.

“The question is not where we are, it’s where we are not. We understand, for the long-run, that Nigeria will be able to solve its problems,” he said.

“If you remember, when the new president [Muhammadu Buhari, elected last year] came, there were two things he wanted to do. He said first thing I’m going to focus on security, because without security there is no nation. [Then] I’m going to focus on corruption, because corruption is a cancer that destroys society. Those two things are progress. Yes, the price of oil has gone down, the price of gas has gone down, the currency is under pressure. But the nation’s strength is not in the oil…or gas, but in the quality and dynamism of the people that have built the country and the continent.

“When we say we’re pan-African, we have no other place to go but sit here, and fix it, and make it the most prosperous continent on the face of the planet,” he concluded.

www.bankerafrica.com

21/06/2016 14:12

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21/06/2016 10:16

MARKETS

M&A for the opportunistic— the future in Africa Despite a significant slump in M&A and investment activity in the first quarter of 2016, optimism abounds amongst business leaders

I

n the first quarter of 2016, merger and acquisition (M&A) investment fees in Sub Saharan Africa hit a five-year high while investment banking fees slumped significantly. Debt capital market, equity capital market and syndicated lending fees dropped dramatically, leaving M&A as the one bright spot in the first quarter.

According to Thomson Reuters and Freeman Consulting, investment banking fees totalled $77.8 million in Q1 2016, a 31 per cent decline from the same period last year. Yet at the same time, M&A transactions topped $42.9 million, a 49 per cent bump and the highest value since 2011. Fees from debt capital markets underwriting declined 56 per cent year-on-year (total for Q1 2016 was $8.6 million. Syndicated lending fees fell 77 per cent, coming to $7.7 million, while equity capital markets underwriting fees dropped 38 per cent to $18.7 million.

Though outbound M&A deal value increased 229 per cent, largely due to South African investments outside of Africa, M&A deal value as a whole fell 23 per cent from the same period last year. Domestic and into-Africa deals were especially bleak—a decreased in value of 74 per cent and 53 per cent, respectively.

20 page 20-22 M&A report.indd 20

Gavin Davies of Herbert Smith Freehills expects that as buyers complete their first deal on the continent, interest will grow quickly.

Yet investors are apparently optimistic about what the year has in store. A recent report by Herbert Smith Freehills (HSF), compiled through a survey of 700 senior executives at global businesses at the end of 2015 and updated in early 2016, found that despite difficult macro-economic conditions, respondents felt optimistic about the M&A market, in many cases even buoyed by the volatility.

Fifty-nine per cent of the respondents globally updated 2016 survey said that recent volatility would have no impact on M&A over the next two to three years—in fact, indeed, 15 per cent said that it would increase their hunger for deals. In Africa specifically, nearly 50 per cent of respondents expected a significant increase in M&A activity through this year.

“Our report revealed that geographic diversification and growth in market share are amongst the top strategic drivers for M&A activity. For businesses who are under-invested in Africa, the continent’s growing population and generally high levels of economic growth offer an opportunity both for diversification and for growth-driven acquisitions. This, combined with the steadily improving legal and regulatory landscape in Africa, means that our respondents had a positive outlook on African M&A despite the global economic headwinds,” Gavin Davies, Corporate and M&A Partner at HSF, said.

Davies noted that respondents’ expectations for African M&A tallied closely with those for several other regions, including South Asia (where 56 per cent expected a significant increase in M&A activity), Greater China (60 per cent), and Western Europe (48 per cent).

www.bankerafrica.com

23/06/2016 09:43

ANNOUNCED ANY SUB SAHARAN AFRICAN INVOLVEMENT M&A BY TARGET MACRO INDUSTRY

Target Macro Industry

Market Share

YTD 2016 Value (US$mil)

Retail

No. Deals

YTD 2015 Value (US$mil)

1,157.4

24.3

9

542.7

Industrials

640.1

13.4

21

223.1

Consumer Staples

608.4

12.8

11

283.7

Real Estate

508.6

10.7

11

787.6

Materials

504.5

10.6

35

858.9

Energy and Power

415.4

8.7

18

1,645.5

Financials

253.3

5.3

40

1,510.9

High Technology

251.9

5.3

9

19.5

Telecommunications

173.1

3.6

10

-

Consumer Product and Services

103.6

2.2

16

28.6

Healthcare

80.8

1.7

2

241.5

Media and Entertainment

67.0

1.4

8

74.2

4,764.0

100.0

190

6,216.2

Industry Total

Source: Thomson Reuters/Freeman Consulting 2016

The most pessimistic regions were the Middle East (18 per cent) and Australia (25 per cent), where Davies said that the ongoing prevalence of low commodity prices may be depressing deal sentiment.

“Businesses and investors now see Africa as an investable region, to be considered equally alongside other developing markets such as East Asia, and developed markets facing economic challenges such as Western Europe,” he said.

However while global conditions may not impact deal appetite, they may shape investors’ choices and sectors of interest. According to Thomson Reuters’ data, the retail sector held a sizable lead on other industries for M&A deals involving Africa—deals totalled $1.15 billion in the quarter, representing 24.3 per cent of total deals. By comparison, the second-leading sector, industrials, totalled $640.1 million for a 13.4 per cent market share. Energy and power only represented 8.7 per cent of deals, with $415.4 million in total value, leaving the sector at sixth place in M&A activity.

HERBERT SMITH FREEHILLS ASKED: WHAT ARE YOUR EXPECTATIONS FOR THE LEVEL OF M&A ACTIVITY OVER THE COMING YEARS? 11%

2%

13%

AFRICA

1%

49%

WESTERN EUROPE

38%

48%

38%

Significant increase Modest increase Stay the same Modest decrease No opinion

8%

32%

18%

MIDDLE EAST 42% Source: Herbert Smith Freehills, The Future of Dealmaking, 2016

cont. overleaf

www.bankerafrica.com

page 20-22 M&A report.indd 21

21 21/06/2016 14:13

MARKETS

cont. from page 21

The prevailing low commodity prices may depress overall deal-flow in the energy and extractives sectors, but should equally mean that opportunities arise for value-seeking investors.

– ­ Gavin Davies, Corporate and M&A Partner at HSF Based on HSF’s survey, Davies said that despite low oil prices he expects Africa-focused M&A to remain opportunistic, with investors searching for “the right fit”.

“The prevailing low commodity prices may depress overall deal-flow in the energy and extractives sectors, but should equally mean that opportunities arise for value-seeking investors.

Our energy and extractives sector respondents selected Africa as their top strategic M&A focus, alongside Western Europe,” Davies said.

In the HSF survey, respondents said that the top strategic priorities for Africa included diversification (33 per cent), high level of growth (19 per cent) and increased market share (17 per cent).

“As with any region, buyers of African M&A targets look for wellpriced assets which are accretive to their existing brands, platforms, or portfolio, and which have a strong management team in place. Because few African businesses have yet scaled up to a very large market cap, buyers often seek cross border deals within Africa—for example, covering several West African countries—as a means of securing a significantly sized deal and a sub-regional foothold,” Davies said.

However keen buyers may be, there are several challenges that could hamper entrance into the African market. Besides labour and employment difficulties, survey respondents also indicated that anti-trust regulations (17 per cent), data and cybersecurity concerns (11 per cent) and bribery and corruption regulations (also 11 per cent) are the biggest roadblocks

22 page 20-22 M&A report.indd 22

to African M&A. On top of that, there is sheer unfamiliarity with the market from many international investors.

“Despite the opportunities available, many buyers have limited experience of investing in Africa—or may never have made an acquisition in Africa.

This lack of familiarity, combined with uncertainty around the political and legal environments in some jurisdictions, makes some buyers more wary of investing in Africa than in other

regions. Our expectation is that, as more buyers complete their first African deal become familiar with particular African countries or African sub-regions, the growth in deal flow to Africa will continue to quicken,” Davies said.

There also is another bright spot— globally, the financial services sector saw a huge surge in value in 2015, according to the HSF report. At $222.4 billion, value rose by 151 per cent year-on-year on the back of 405 deals, it revealed. Africa’s share of this activity is still miniscule, however a full 11 per cent of survey respondents indicated that the continent is the focus of their upcoming acquisition strategy, putting Africa just behind North America, Western Europe and South/ Southeast Asia as a priority for financial sector dealmaking.

FAST FACTS: Herbert Smith Freehills surveyed 700 global business executives for their Q1 2016 report:

46 % 20 % 33 36% %

Say recent turbulence will have no effect on the next 12 months (and 60 per cent over next two to three years)

Said the turbulence will actually increase their appetite for M&A (15 per cent for next two to three years)

Of EMEA-based companies will focus on Western Europe

Of EMEA respondents cite labour and employment regulation as the biggest challenges

www.bankerafrica.com

15/06/2016 09:09

Make banking child’s play

bleed guide.indd 1

19/06/2016 10:07

COVER STORY

Striking a balance Global factors have set many African countries on a course for slower growth, but Bank of Tanzania Governor Benno Ndulu says the country is well-positioned to balance in the headwinds

Benno Ndulu says a combination of fiscal consolidation and diversification has kept Tanzanian growth strong.

I

n April, the International Monetary Fund (IMF) scaled down its global growth projections for 2016 and 2017 by several basis points. For Africa, this meant a drop to three per cent average growth each year, the lowest projection for the continent in 15 years. However economic slowdowns are not created equal; while oil exporters like Nigeria have been hit hard, importers and even more diversified exporters are expecting to weather the new climate better than others.

24 page 24-26 cover story.indd 24

Tanzania is one such case. Though the country is an oil importer, it is a significant gas producer and has witnessed a 40 to 60 per cent drop in commodities prices over the last two years, according to Professor Benno Ndulu, Governor of the Bank of Tanzania (BoT). However Governor Ndulu is confident; he recently told Banker Africa that the country’s seven per cent GDP growth expectations are still on track due to an ongoing balancing act between industrialisation, government spending and monetary policy that has capped inflationary pressures.

It could not be better timing. The recent IMF report recommended that countries adopt a medium-term spending framework, striking an appropriate balance between debt management and development needs. For oil exporters, it advised authorities to draw on buffers or borrow to smooth the adjustment. In terms of monetary policy, the IMF emphasised close monitoring of the exchange rate for non-pegged currencies—even nonoil exporters have seen their currencies come under pressure in the current economic headwinds.

Asked about the IMF’s recommendations, Ndulu was positive.

“To me, the IMF is giving a right direction, which will enable Sub Saharan Africa to minimise risks associated with decline in commodity prices and the limited fiscal space,” he said.

“Fiscal policy should focus on redressing the regressive [nature] of taxes and expenditures, while scaling up well-targeted expenditures on healthcare and education and other important social services in order to lower social inequality. We need to adjust our fiscal policies and allow policy target towards diversification and financial sector development in order to strengthen resilience and boost economic growth,” he said. Economic diversification, he added, would be as vital as proper fiscal policies.

“In Tanzania, since the fifth-phase government assumed office it has made significant efforts, notably by strengthening tax administration,

www.bankerafrica.com

21/06/2016 13:58

Growth IN in ASSETS assets AND andDEPOSITS depositsSINCE since the global financial crisis GROWTH THE GLOBAL FINANCIAL CRISIS 50% Growth - percentage change from previous years

through which revenue collection has been boosted substantially,” he said. The Government has also made significant cuts in non-priority spending and unnecessary expenditure— Ndulu pointed to a new law requiring government officials to get travel approved through the State House. This law alone, according to the Governor, has saved more than TZS 4 billion a month.

Meanwhile, the government is still embarking on several large-scale gas projects while maintaining a close eye on public debt. According to Ndulu, “We still have a sustainable debt, thus giving a comfortable fiscal position for countercyclical policies if growth slows down markedly.”

Thus while the IMF’s call for a policy reset is an important reminder of fiscal and development priorities, Ndulu expressed confidence for Tanzania and its banking sector. In fact he drew comparisons to the global financial crisis; though it had no direct impact on the Tanzanian economy, in 2010/11, growth in balance sheet items such as loans, investment in debt securities and total assets decreased. However since 2012, the Tanzanian banking sector has registered continued growth, albeit it of a slightly different kind.

“Whereas loans have continued growth since 2012, banking institutions have been switching investments between making placement with other banks and investing in debt instruments,” he said, noting that in 2014, investment in debt securities increased by seven per cent, whereas placements with other banks decreased by 0.5 per cent. In the year 2015, investment in debt instruments decreased by four per cent while placement with other banks increased by 27 per cent.

“This trend may be explained by the fact that inflation declined to single digit and treasury bills rate also declined thus banking institutions switched to placements with other banks,” Ndulu said.

40% 30% 20% 10% 0%

2009

2010

2011

2012

2013

2014

-10% -20%

Placement with other banks Investment in debt securities

Year Loans advances and overdraft Total assets Deposits liabilities orher than banks PLACEMENT WITH OTHER BANKS

INVESTMENT IN DEBT SECURITIES

Source: Bank of Tanzania

LOANS ADVANCES AND OVERDRAFT

MANAGING THE THREATS TOTAL ASSETS

Though there have been several According to BoT numbers, as of endBoT measures—including the Risk DEPOSIT LIABILITIES OTHER THAN BANKS December 2015 the banking sector Management Guidelines for Banks and capital adequacy ratios of core and total Financial Institutions Act in 2010—the capital to total risk weighted assets and shifting global economy, along with fast off balance sheet exposures stood at paced changes in banking technology Managing the threats 17.49 per cent and 19.49 per cent, and security, has made keeping up with respectively, which are substantially risk management protocol a key priority.

According to BoT numbers, as of end-December 2015 the banking sector capital adequacy ratios of core above the regulatory requirements of 10 However the truth is that Tanzania and total capital to total risk weighted assets and off balance sheet exposures stood at 17.49 per cent per cent and 12 per cent, respectively. is still a very cash-heavy economy, and 19.49 per cent, respectively, which are substantially above the regulatory requirements of 10 per The sector also had a liquidity ratio of especially compared in its Northern cent and 12 per cent, respectively.

37.25 per cent, well above the regulatory neighbour, Kenya. Ndulu said that requirement of 20 per cent, while the the Central Bank is focusing on this, The sector also had a liquidity ratio of 37.25 per cent, well above the regulatory requirement of 20 per level of non-performing loans (NPLs) promoting electronic payments as a cent, while the level of non-performing loans stood at 6.64 per cent. Ndulu said that the BoT is making stood at 6.64 per cent. Ndulu said that way of financial inclusion through last efforts to bring each banks’ non-performing loans ratio to below five per cent, but this remains one of the BoT is making efforts to bring each year’s National Payment System Act. the banking sector’s most significant risks. banks’ NPL ratio to below five per cent, “[The Act] is a parent legislation but this remains one of the banking recognising any entity as a payment sector’s most significant risks. system provider as long as the entity “The biggest risks in Tanzanian has met all the prescribed regulatory banking sector are credit and requirements,” he said. Under the operational risks based on the fact legislation, the Bank issued payment that significantly loans, advances and system approval and licensing regulations overdrafts account for over 50 per cent and electronic money regulations to begin of banking sector assets,” Ndulu said. regulating non-banking payment groups. cont. overleaf

www.bankerafrica.com

page 24-26 cover story.indd 25

2015

25 23/06/2016 09:46

COVER STORY

cont. from page 25

CONSOLIDATION ON THE HORIZON?

There are currently 34 banks in Tanzania servicing roughly 40 per cent of the 49.25 million population, acording to the Global Findex Database in 2014. If that seems excessive, some people think so and have called for consolidation or acquisition of smaller, third-tier banks.

Asked about the possibility of movement within the banking sector, Ndulu said that currently the BoT does not have a policy that requires mandatory consolidation of banking institutions operating in Tanzania.

“There is no anticipated consolidation of banking institutions in the near future. Despite the increasing number of banking institutions, the banked population is still below 20 per cent of bankable population, and therefore the number is not considered high,” he said. “To encourage and promote mergers and acquisitions in the banking sector the Bank of Tanzania is working on the proposal to develop regulations on Mergers and Acquisitions, which can facilitate increased consolidation activities in the sector.”

instruments to ensure that liquidity is to take appropriate measures against consistent with the demands of various such risks,” Ndulu continued. economic activities in order to keep Ultimately, on the economic front, inflation at a single digit level,” he said.

Tanzania is not far off its seven per cent “Inflation is expected to moderate goal, registering 6.9 per cent for the first in the coming months, supported by three quarters of 2015. Ndulu attributed availability of food owing to good short this growth to credit to the private sector, “Inflation is expected to moderate in the coming months, supported by availability of food owing to rains—vuli—harvest; low domestic oil on-going investments in infrastructure good short rains—vuli—harvest; low domestic oil prices, and the stability of the shilling exchange rate. prices, and the stability of the shilling developments, and investment in In addition, tight monetary policy, improved expenditure management and enhanced revenue exchange rate. In addition, tight provision of mobile and internet services. mobilisation by the government will help to ease inflationary pressures in the medium term. However, monetary policy, improved expenditure In terms of contribution to growth, the upward risks to inflation may arise due to food shortages in neighbouring countries particularly in the management and enhanced revenue leading activities were construction southern sub-region. Accordingly, the Bank will stand ready to take appropriate measures against such mobilisation by the government will (18.4 per cent), agriculture (10.9 per risks,” Ndulu continued. help to ease inflationary pressures in cent), trade (10.7 per cent) and transport the medium term.

However, upward (9.9 per cent). The fastest growing Ultimately, on the economic front, Tanzania is not far off its seven per cent goal, registering 6.9 per cent risks to inflation may arise due to food activities were construction (13.2 per for the first three quarters of 2015. Ndulu attributed this growth to credit to the private sector, on-going shortages in neighbouring countries cent), information and communication investments in infrastructure developments, and investment in provision of mobile and internet particularly in the southern sub-region.

(12.4 per cent), and transport services. In terms of contribution to growth, the leading activities were construction (18.4 per cent), Accordingly, the Bank will stand ready (10.9 per cent). agriculture (10.9 per cent), trade (10.7 per cent) and transport (9.9 per cent). The fastest growing activities were construction (13.2 per cent), information and communication (12.4 per cent), and transport (10.9 per cent).

[BOX OUT] Bond issuance: past, present and future

Bond issuance: past, present and future

(INCLUDE CHART BELOW IN BOX OUT)

In April 2016, the Bank issued Treasury bonds worth TZS 98.80 billion that were In April 2016, the Bank issued Treasury bonds worth TZS 98.80 billion that were oversubscribed 106 per oversubscribed 106 per cent, to a total value of TZS 203.01 billion. Treasury bonds cent, to a total value of TZS 203.01 billion. Treasury bonds auctions recorded an overall bid to cover ratio auctions recorded an overall bid to cover ratio of 2.85 which indicates successful of 2.85 which indicates successful auctions with aggressive bids. This is also reflected in bond pricing auctions with aggressive bids. This is also reflected in bond pricing which led to a which led to a decrease of Yield to Maturity (YTM) to around 17 per cent by the end of April 2016. decrease of Yield to Maturity (YTM) to around 17 per cent by the end of April 2016.

Governor Ndulu said that based on participation in the bond, pension funds and Governor Ndulu said that based on participation in the bond, pension funds and commercial banks commercial banks continue to dominate Treasury Securities auctions, accounting KEEPING INFLATION continue to dominate Treasury Securities auctions, accounting for 54 per cent and 40 per cent, for 54 per cent and 40 per cent, respectively, of the total bids received during the UNDER CONTROL respectively, of the total bids received during the period under review. Going forward, the Bank is period under review. Going forward, the Bank is planning to issue Treasury bonds In the 2014/15 fiscal year, the BoT planning to issue Treasury bonds worth TZS156.51 billion and TZS 180.36 billion in May and June 2016, worth TZS156.51 billion and TZS 180.36 billion in May and June 2016, respectively. implemented several policies to face respectively. off inflationary pressures, ultimately INVESTOR

BY CATEGORY PARTICIPATION IN TREASURY BONDS AUCTIONinINApril APRIL2016 2016 by category participation in Treasury bonds auction maintain the currency at 5.1 per Investor cent despite the depreciation of the Others Tanzania shilling. Ndulu said that the 1% tight monetary policy stance was also supported by low food prices following the regional bumper harvests during 2014/15 food crop-season and fall in Commercial banks global oil prices. As a result, he said, Pension 40% these factors dampened the impact Funds Individual investors 54% 2% of the depreciation of the shilling Insurance companies on inflation.

Other Official Enmmes 2% 1% “In 2015/16, Bank of Tanzania will continue to pursue tight monetary Source: Bank of Tanzania policy, using a mix of monetary policy

26 page 24-26 cover story.indd 26

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19/06/2016 10:08

COUNTRY FOCUS KENYA

Speaking at the Banker Africa East Africa Awards, KBA CEO Habil Olaka said that now is the time to rebuild customer trust in the sector.

Coming back from a crisis in confidence Recent bank struggles have thrown light on the weakness in the sector but give banks opportunities to improve, says Kenya Bankers’ Association CEO Habil Olaka

S

peaking at the 24 May Banker Africa Awards in Nairobi, Kenya Bankers’ Association (KBA) CEO Habil Olaka dwelt on the on the “new norm for banking” in light of a series of events that have shaken some consumers’ confidence in the Kenyan banking sector.

28

Olaka began his speech by noting that the association is “pleased” with industry’s performance in so far as its intermediary role.

“A key measure of the banking industry is the extent to which it facilitates capital flow, as well as income growth through lending activities and value-added innovative products and services,” he said.

According to Olaka, the banking industry collectively advanced over KES 2.29 billion into the economy in 2015, a 17.5 per cent increased over the previous year. He said that a significant portion of this lending went to small- and medium-sized enterprises that make up a large part of the Kenyan economy.

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page 28-29 KBA Habil Olaka.indd 28

21/06/2016 14:14

“In fact, banks in Kenya lead in Africa when it comes to SME finance as a proportion to the total loan portfolio, and we are very proud of the homegrown solutions and innovations the banking industry has come up with to serve the SME sector,” he said.

Turning to the recent events with Chase, Imperial and National Bank of Kenya, Olaka expressed support of Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge.

“As an industry we can no longer function as business as usual. Our customer and the market are losing faith in banks; and it is our duty—and daily call—to ensure that we rebuild trust,” Olaka said. “At KBA, we have taken this ‘crisis of confidence’ that we face as a banking industry very seriously.

We therefore have taken the proactive approach to seek to cultivate a culture of governance and transparency; and safeguard the interest of all stakeholders in their day-to-day business dealings.”

In April, the KBA signed on to the Kenya Private Sector Alliance (KEPSA) Code of Ethics for Business in Kenya which will require its members to follow specific ethical standards. The Code will also inform the KBA Self-Regulatory Framework and Standard for Member Banks, which Olaka said the Association plans to publish within the next few months.

“The success of our industry is dependent on the trust and confidence we earn from our employees, customers and shareholders. We gain credibility by adhering to our commitments, displaying honesty, integrity and reaching company goals and business aspirations solely through honourable contracts,” he continued.

Olaka also took the opportunity to highlight the Sustainable Finance Initiative (SFI) that Kenyan banks moved to adopt in March 2015 but first began constructing in 2013.

As an industry we can no longer function as business as usual. Our customer and the market are losing faith in banks.

–­ Habil Olaka, CEO of the Kenya Bankers’ Association

The five main principles of the SFIs include seeking both financial return and economic viability; growing through inclusivity and innovation; managing and mitigating associated risks; making choices with resource scarcity in mind; and promoting business ethics and values.

“By establishing the SFI, Kenya has followed in the footsteps of other countries like Nigeria and South Africa that have developed a set of universal principles that guide banks in balancing their immediate business goals with the economy’s future priorities and socioenvironmental concerns,” he said.

“The Kenya banking industry unanimously adopted the Sustainability Principles last year, becoming the first country in Africa to have a bank-led process that will equip the financial services sector to perform optimally in the area of comprehensive risk management; enhancing business practice, leadership and governance; and promoting industry growth and development by fostering a culture of innovation and inclusivity enabled by new technology.”

Olaka also pointed out that the banking industry has been working to implement the new Kenya Banks’ Reference Rate (KBRR) and Annual Percentage Rate (APR) frameworks, both to open up access to credit through pricing transparency. Olaka said that the two rates will give borrowers a chance to compare different loan products, thereby making more informed credit decisions. To support the benchmarks, KBA has designed a total cost of credit calculator and mobile app.

DIGITISING KENYAN PAYMENTS Days after the Awards ceremony, KBA unveiled a payments technology delivery service firm, Integrated Payments Service Limited (IPSL), a fully-owned KBA subsidiary. Designed to be a go-tomarket platform via the Kenya Interbank Transaction Switch (KITS), IPSL will provide technology-based payment solutions to the association’s member banks, at subsidised rates. Olaka said that the platform was founded under the CBK National Payment System guidelines and will also inform policy direction and manage the risks associated with payment systems in the market, while providing technical and related guidance to KBA member banks.

As part of its operational strategy, IPSL, will soon be unveiling an interoperable, advanced person-to-person (P2P) payment solution. The solution is currently on its testing phase with a complement of more than 20 member banks participating in the User Acceptance Testing (UAT) trials, KBA reported.

Michael Mbuthia, CIO of IPSL said that the technology will also bring in a new type of interoperable payment transactions switching platform. The development of the platform, which will complement KBA’s existing clearing house, follows the recent signing of a financing agreement between KBA and Bank of Baroda, as the project financers, he said. One completed, KBA plans for the IPSL system to make person-to-person transfer possible through mobile banking, internet banking, ATMs, branch offices, agency banking and pointof-sale (POS). cont. overleaf

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29 19/06/2016 08:51

COUNTRY FOCUS KENYA

Waking up the watchdogs The Central Bank of Kenya has ushered in a new era of prudence in the midst of rising NPL rates across the sector—our data spells out who made gains in last year’s climate

T

he Kenyan banking sector is acclimating to what Central Bank Governor Patrick Njoroge called “a new normal” in banking. Since the new Governor assumed office in June 2015, three banks—Dubai Bank in July 2015, Imperial Bank in October 2015 and Chase Bank in April 2015—have been put into receivership. Also since April, executives from both Chase Bank and another mid-tier bank, National Bank of Kenya, have been under investigation for mismanagement, namely in the form of soaring non-performing loan (NPL) rates. Njoroge has placed the responsibility for recent events at the feet of former regulators who he said were asleep at the controls.

In this Kenya Country Focus, the data compiled by the CPI Financial team draws from each bank’s annual report for 2015, thus does not reflect the impact of the events earlier this year, particularly Chase Bank’s receivership.

Considering the ongoing investigation of Chase Bank’s finances, we also did not include the institution in this report.

As of print, at least KES 8.7 billion ($86 million) in irregular loans have been exposed and authorities have ordered the arrest of the bank’s Chairman and Managing Director.

30 page 30-32 Kenya Data.indd 30

Several policy reforms originating with the Central Bank and Governor Njoroge’s leadership have helped reveal report gaps and mismanagement in the fallen banks—triggering some panic in the short-term but promising

improved governance and stability in the long-term. In fact, according to most banks’ reports from the first three months of the year, profits have remained steady, even strong. Equity Bank reported net profit growth of

TOP 5 BANKS BY ASSETS SIZE ('000 USD) Top 5 Banks By Assets Size ('000 USD) Standard Chartered Kenya Standard chartered kenya

2,286,797

Diamond Trust Bank Diamond Trust Bank

2,654,725

Co-operative Bank of Kenya Co-operaAve Bank of Kenya

3,347,621

Equity Bank Kenya Equity Bank Group

4,183,918 5,454,858

Kenya Commercial Bank Kenya Commercial Bank Source: CPI Financial

TOP 5 BANKS BY NPTop 5 Banks By NP Size ('000 USD) SIZE ('000 USD) 61,991 64,507

191,797

Kenya Commercial Bank Kenya Commercial Bank Equity Bank Group Equity Bank Kenya Co-operative Bank of Kenya Co-operaKve Bank of Kenya Diamond Trust Bank Diamond Trust Bank Standard Chartered Kenya Standard chartered kenya

114,411

169,356 Source: CPI Financial

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21/06/2016 14:15

economic outlook is largely the same. David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF) said in a May visit to the country that despite the global economy, Kenya’s own GDP growth remained strong and its financial sector in particular has made “remarkable progress”.

19 per cent in the first quarter, while the Co-operative Bank of Kenya and KCB Kenya reported Q1 net profit growth of eight per cent and six per cent compared to Q1 2014.

Thus despite challenges faced by the banking industry through the first half of the year, and the ensuing customer panic, the county’s macro-

Top 5 Banks By Liability Size & Liability $ change TOP 5 BANKS BY LIABILITY SIZE & LIABILITY $ CHANGE Top 5 Banks By Liability Size & Liability $ change -125,124 1,883,599 -125,124 Standard chartered kenya

1,883,599 2,280,325

Standard Chartered Kenya Standard chartered kenya Diamond Trust Bank

299,901

2,280,325 2,865,727

Diamond Trust Bank Diamond Trust Bank Co-operaBve Bank of Kenya

299,901 186,670

2,865,727 3,478,851

Co-operative Bank of Kenya Co-operaBve Bank of Kenya Equity Bank Group

186,670

3,478,851 4,660,679

Equity Bank Kenya Equity Bank Group Kenya Commercial Bank

376,956 376,956

79,520 79,520

4,660,679

Kenya Commercial Bank Kenya Commercial Bank

Liability Size

Liability $ change

Liability Size

Liability $ change

Source: CPI Financial

TOP 5 BANKS BY ASSETSTop 5 Banks By Assets % change % CHANGE CFC Stanbic Bank CFC Stanbic Bank Group

1.90%

Co-operative Bank of Kenya Co-operaFve Bank of Kenya

6.18%

Equity Bank Kenya Equity Bank Group

9.92%

Diamont Trust Bank Diamond Trust Bank

13.60%

UBA Kenya UBA Kenya Bank

44.77% Source: CPI Financial

REVENUE $ CHANGE 2,001

Revenue $ change 692

11,079 8,850

I&M Bank I&M Bank Equity Bank Group Equity Bank Kenya Diamond Trust Bank Diamond Trust Bank Co-operative Bank of Kenya Co-operaKve Bank of Kenya UBA Kenya UBA Kenya Bank

9,845 Source: CPI Financial

“Kenya has become an important destination of capital inflows from advanced and emerging markets. Many structural reforms have advanced, including in the areas of devolution, public financial management, and business regulations,” he said.

THE BANKS IN 2015 CPI Financial analysed year-on-year growth of assets, liabilities, revenue, net profit, return on assets (ROA) and return on equity (ROE). In US dollar terms—adding dollar change in the year to banks’ existing size—the ‘best bank’ was Co-operative Bank followed

by Kenya Commercial Bank (KCB)’s Kenya arm, and Equity Bank Kenya.

In terms of percentage change across the six factors, the ‘fastest growing’ bank was also Co-operative Bank, followed by Diamond Trust Bank and KCB Kenya.

Though other banks grew more significantly in terms of dollar change in certain categories, Co-operative Bank of Kenya performed most solidly across the six factors, generating assets and liabilities of 6.18 per cent and 6.97 per cent respectively, and quite significant net profit growth of 29.22 per cent (though smaller revenue growth of 0.56 per cent).

In ROA and ROE, where at least half the banks reported decreases on returns, Co-operative posted 21.7 per cent (ROA) and 27.01 per cent (ROE) growth.

For assets and liabilities alone, Diamond Trust Bank (DTB) came out with 13.6 per cent and 15.14 per cent growth respectively, the largest amongst the more established banks. United Bank for Africa (UBA) Kenya, while small, has the largest percentage change in assets (44.77 per cent) and liabilities (62.9 per cent), earning the bank fourth in the fastest growing ranks, above Equity Bank Kenya. However the Nigerian-originated bank, which opened its doors in Kenya in 2009, only made net profit of about $2.6 million, a 17.6 per cent decline from 2014. cont. overleaf

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page 30-32 Kenya Data.indd 31

31 20/06/2016 13:37

COUNTRY FOCUS

cont. from page 31

KCB Kenya had only marginal growth in assets and liabilities and a slight drop in revenue (4.4 per cent) but came out second-best in net profit with $5.67 million, or 3.05 per cent growth. Besides Co-operative Bank and DTB, it was the only other bank to report gains in net profits year-on-year.

The numbers for NIC Bank, I&M Bank Kenya and Barclays Bank Kenya all told similar tales, with each bank hitting similar revenue decreases (4.65 per cent, 4.67 per cent and 7.85 per cent, respectively) though NIC Bank eked out small increases on assets and liabilities growth. In terms of net profit, Barclays suffered 11.37 per cent less profit compared to NIC Bank’s 3.6 per cent decline and I&M Bank’s 1.97 per cent increase.

Most of the banks in the middle and bottom of the tables reported lower net profits and slower growth yearon-year, but generally below or near 10 per cent decline. More significantly, National Bank of Kenya, which struggled with a sharp NPL increase in 2015, posted net profit of $20.89 million, or a 217.21 per cent drop from the last year.

Kenya has become an important destination of capital inflows from advanced and emerging markets.

Many structural reforms have advanced, including in the areas of devolution, public financial management, and business regulations.

–­ David Lipton, First Deputy Managing Director of the International Monetary Fund (IMF)

TRENDS IN BANKING Overall, most banks reported higher NPL rates in 2015, a trend that seems to have continued through the first quarter of 2016 based on quarterly reports. Though growth in the Kenyan banking sector is certainly subdued compared to recent high-growth years, the top-tier banks are growing steadily, while mid-tier banks had a quieter but not necessarily disastrous year.

In fact certain institutions are making significant moves towards more aggressive growth and market consolidation. I&M Bank announced on 18 May its shareholders’ approval of a 65 per cent acquisition of Burbidge Capital Limited, a corporate advisory firm, and on 6 June its acquisition of Giro Commercial Bank (GCB) for KES 5.09 billion ($50.37 million).

According to research from Standard Investment Bank, acquisition price represents roughly 11 per cent of I&M Holdings’ market capitalisation and GCB made net profit of about KES 500 million ($4.95 million) last year.

“In our view, the acquisition will have minimal strategy disruption given similarities of the two banks both have conservative balance sheets and mainly target middle to high income customers as well as SMEs,” Standard Investment Bank said in a statement.

Elsewhere in the market, the acquisition of Oriental Commercial Bank last year by Tanzania’s Bank M— rebranding the bank as M Oriental— will likely bear fruit this year. Bank M’s focus on family corporates will likely be the strategy for M Oriental.

BEST BANK (SIZE + $ CHANGE)

FASTEST GROWING BANK (% GROWTH)

1 Co-operative Bank of Kenya

1 Co-operative Bank of Kenya

2 Kenya Commercial Bank

2 Diamond Trust Bank

3 Equity Bank

3 Kenya Commercial Bank

4 Diamond Trust Bank

4 UBA Kenya

5 I&M Bank

5 Equity Bank Kenya

6 Barclays Bank Kenya

6 I&M Bank

7 NIC Bank

7 NIC Bank

8 CFC Stanbic Bank Group

8 Barclays Bank Kenya

9 UBA Kenya

9 African Banking Corporation

10 African Banking Corporation

10 CFC Stanbic Bank Group

11 Standard Chartered Kenya

11 Standard Chartered Kenya

12 Bank of Africa Kenya

12 Bank of Africa Kenya

13 National Bank of Kenya

13 National Bank of Kenya

Source: CPI Financial

32 page 30-32 Kenya Data.indd 32

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23/06/2016 09:54

27-28 27-28

SEPTEMBER SEPTEMBER 2O16 2O16

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2nd Annual 2nd Annual

SMART SMART CARD, CARD, PAYMENTS PAYMENTS AND AND BANKING BANKING TECHNOLOGY TECHNOLOGY FOR FOR EAST EAST AFRICA AFRICA 1OOO1OOO ATTENDEES ATTENDEES | 1OO| 1OO SPEAKERS SPEAKERS | 2OO| 2OO HOSTED HOSTED VIPSVIPS 4O EXHIBITORS 4O EXHIBITORS | 25O| 25O DELEGATES DELEGATES Hear Hear from from regional regional andand international international banking banking giants: giants:

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AbdiAbdi Edwin Edwin Mohammed Mohammed de Ron de Ron

Chief Chief Chief Chief Managing Managing Chief Chief Chief Chief Executive Executive Executive Executive Director Director Information Information Operating Operating OfficerOfficer OfficerOfficer Housing Housing OfficerOfficer OfficerOfficer Access Access Bank BankBarclays Barclays Bank Bank Finance Finance Bank Bank KenyaKenya Barclays Barclays (Tanzania) (Tanzania) KenyaKenya (Uganda) (Uganda) Commercial Commercial(Kenya)(Kenya) (Kenya) (Kenya) Bank Bank (Kenya) (Kenya)

Co-located Co-located with: with:

Zafar Zafar Kazmi Kazmi

Chief Chief Head Head of Mobile of Mobile Marketing Marketing Channel Channel OfficerOfficer Strategies Strategies FetchFetch & & ErsteErste Bank Bank HeadHead of of (Austria) (Austria) Partnerships Partnerships at Rabobank at Rabobank (Netherlands) (Netherlands) Organised Organised by: by:

www.terrapinn.com/PaymentsEA www.terrapinn.com/PaymentsEA bleed guide.indd 1

21/06/2016 10:27

POLICY SPOTLIGHT

Significant private sector growth is needed to push unemployment down, says Amine Mati.

Making private sector development a priority The IMF and Tunisia struck a deal for a $2.9 billion loan to strengthen job creation and economic growth—IMF Mission Chief for Tunisia Amine Mati discusses what is first on the agenda

I

n May 2015 the IMF approved a four-year, $2.9 billion loan for Tunisia that it said would go towards more inclusive growth and job creation. The arrangement is an extension of an agreement between the IMF and Tunisia for support immediately following the Arab Spring.

In a comment following the announcement, Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair, said that Tunisia’s economy has shown resilience but that it continues to

34 page 34-35 Policy Spotlight.indd 34

face important fiscal, external, structural, and social challenges.

The new agreement makes $319.5 million immediately available.

Furusawa said that authorities will need to make critical banking sector legislation and civil service reforms top priorities, as well as a fiscal policy to drive down public debt. The programme will also support efforts to create a better business environment, in turn promoting inclusion and development.

IMF Mission Chief for Tunisia Amine Mati spoke to the Fund’s internal publication, IMF Survey, about lingering risks and the priorities of the new economic programme, particularly following the post-Arab Spring agenda of the first programme.

“The first programme, the Stand-By Arrangement, helped Tunisia preserve macroeconomic stability during a very difficult time—prolonged political transition, increased social tensions including strikes and work stoppages,

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23/06/2016 09:56

and security tensions arising from conflicts with Salafists and the tragic terror attacks of 2015 that devastated the tourism industry. Amid this challenging landscape, the authorities were able to implement an ambitious reform agenda aimed at supporting private sector development, tackling high unemployment, and reducing regional disparities,” Mati said.

It is perhaps unsurprising then that despite significant progress, Tunisia still has a long journey ahead—Mati cited several key challenges.

“Spending composition has worsened, external imbalances are high, the dinar remains overvalued, banking fragilities remain, and reforms to strengthen the business climate have been slow. That is why the authorities requested a followon four-year programme, the Extended Fund Facility, to support their economic vision of modernising the country’s development model and reducing existing vulnerabilities,” Mati said.

“This longer-term programme is designed to target the critical longstanding structural weaknesses of Tunisia’s economy—the ones that have resulted in slow growth and high external balances,” he continued. In particular, unemployment in Tunisia is high—15 per cent overall, 35 per cent among youth—while the public sector remains bloated. According to numbers given by Mati, the existing wage bill represents 65 per cent of tax revenue, 14 per cent of GDP, and 45 per cent of total spending for the Government.

The new programme will therefore build off earlier progress while addressing remaining structural obstacles, namely private sector development. Mati said it is based on five pillars, or priorities, for more inclusive and sustained macroeconomic growth.

The first is a gradual reduction of the overall fiscal deficit to stabilise public debt at about 50 per cent of GDP. Second, Mati said authorities will

focus on a better composition of public spending, as “wage containment would allow for a doubling of priority public investment that supports growth and poverty reduction”. Mati said that civil sector reform would include revision of pay structure, strong links between pay and performance and redeployment of staff in higher need areas. The programme is expected to reduce the wage bill to 12 per cent of GDP by 2020, opening up funds for investment.

Third, the IMF is urging greater exchange rate flexibility to improve Tunisia’s external competitiveness and rebuild foreign reserves. The fourth and fifth pillars deal with improving the operating environment for banks and business, through both financial sector intermediation—including the continued restructuring of public banks—and structural reforms targeting state-owned enterprises, energy subsidies, the tax system and governance procedures.

“All these reforms will take time to bear fruit, but over time they will help increase growth to five per cent,” Mati said.

“At this time in Tunisia, restoring investors’ confidence—weakened by political uncertainties and security challenges—is key. Just as important, however, is changing the long-standing development model—which is based on pervasive state intervention that led to an economy dependent on low-value added exports, excessive regulation, and limited competition—requires moving quickly with the new investment code and implementing the new competition law,” he said.

STRIKING A BALANCE Steady progress on all five pillars of the programme—from curbing the public sector to promoting business-friendly policies—will be essential to building a more sustainable economic foundation.

“Civil service reform should go hand in hand with tax reform that improves fairness by widening the base and

increasing the purchasing power for the lowest income taxpayer—e.g., by raising the income tax threshold. As recognised by the authorities, reform implementation is essential as only the private sector can create sustainable jobs— not the public sector,” Mati said.

Mati also advised that authorities implement private-public partnerships that attract private capital for infrastructure projects.

“All these improvements in the business climate, helped by further streamlining of existing regulations, will encourage private sector development and signal to local and global investors that Tunisia is open for business.

Reforming the labour market will also be necessary, although that is likely to take time to build more consensus. In the meantime, the authorities have launched active labour market programmes, e.g. public works, microfinance, and vocational training programmes that can help lessen unemployment among college graduates,” he said.

Fast Facts

5%

Projected GDP growth year-on-year after programme’s goals

12%

Public wage bill’s share of GDP by 2020

35%

Current youth unemployment rate

50%

Target for public debt to GDP by 2020

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35 15/06/2016 09:11

TRAILBLAZERS

Not just hot air Lake Kivu in Rwanda is explosive—literally. But a new methane power plant by ContourGlobal should minimise risk and boost the country’s electrification by a quarter

I

t’s not often that a country president will show up for the opening of a power plant—but there is also no plant like this in the world.

Rwanda President Paul Kagame was in attendance on 16 May when the plant, owned and operated by US energy corporation ContourGlobal, was inaugurated. The KivuWatt power plant, on the shores of Rwanda’s Lake Kivu, is a flagship project of the Power for Africa initiative and, with its floating barge system, a pioneer in methane extraction and purification.

Lake Kivu has been known as the “killer lake” due to huge amounts of biogas trapped under a layer of heavy water containing minerals washed out of the nearby volcanoes. When the gas concentration gets too high, or the lake is hit by an earthquake in the region, the gas can be set free, posing a threat to the people living in the vicinity. The plant will not only harness the copious amounts of methane gas in the lake, but help limit the risk of methane to the surrounding population.

36 page 36-37 Trailblazers.indd 36

The KivuWatt plant uniquely employs a barge floating 13 kilometres from the lake’s coast. It is on this barge that gas is lifted and purified, then transferred through underwater pipelines to the shore. ContourGlobal said that it is planning another two to three barges by 2018-19.

Jarmo Gummerus, ContourGlobal’s Country Manager for Rwanda, said that the plant’s opening has added 25 per cent to Rwanda’s available energy capacity.

“The next stage of the project has already started, by next year another eight MW will be added and by 2020, there will be up to 100 MW production available,” Gummerus said.

The plant was financed under a private partnership including the African Development Bank (AfDB), the Emerging Africa Infrastructure Fund (EAIF) and the Netherlands Development Finance Company (FMO).

Phase 1 has been fully operational since 31 December 2015, feeding 26 MW of urgently needed power into Rwanda’s national grid.

“KivuWatt is the first commercial power plant of its kind. The extraction process had to be developed as it has not been used anywhere else with gas and water,” Gummerus said, noting that Lake Kivu is the only lake in the world with commercially high methane content—thus the plant is likely to remain unique.

In order to ensure safe operations of the Facility, KivuWatt has set up a team of over 70 employees. Of the staff, 58 per cent are local and 42 per cent are expats, giving a boost to local employment.

The extraction process is not without challenges. In particular, ContourGlobal said that the raw gas quality is unknown, but that “process conditions are designed to ensure

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21/06/2016 14:16

The KivuWatt plant, the first of its kind, sits on a barge in the middle of Lake Kivu, pumping dangerous methane gas to be purified and harnessed for energy.

significant quality improvement.”

Furthermore, it said that “the gas volume that could be harvest[ed] was theoretical so the process was designed to maximise”, meaning it is a possibility that there is not as much potential power in the project as previously projected. These challenges are mostly due to the unprecedented nature of the plant and its harnessing techniques.

Methane Gas (CH 4 ) was first discovered in the deep waters of Lake Kivu, which forms part of the border between the Republic of Rwanda and the Democratic Republic of Congo (DRC), in 1936. The gas has been used in power generation since 1943 and produced significant gas to power the hot water and steam boilers of the Bralirwa brewery in Gisenyi beginning in 1963.

Contour Global said that numerous studies of the lake and its potential resource were conducted following the discovery, but most comprehensively in 1976. These studies uncovered approximately 250-300 km3 of dissolved carbon dioxide and 55-60 km 3 of methane gas accumulated and trapped at a significant depth in the lake, with these quantities increasing on a daily basis.

According to ContourGlobal, the scientific community has predicted that, without a controlled reduction in methane and carbon dioxide levels, there is a risk of a toxic release of large quantities of these gases within the next 100 years. Such a release would have a catastrophic effect on the millions of people living around the lake, many of whom would be asphyxiated.

“One mitigation measure would be to vent and flare the methane gas.

This is undesirable since methane is a greenhouse gas many times more potent than carbon dioxide. Moreover the gas is a good source of power generation so flaring would be wasteful as well as polluting,” ContourGlobal said in a statement on the plant’s launch. “Therefore the scientific community believes that using the gas for electricity generation is the best way to reduce the catastrophic release risk in an environmentally responsible manner.”

Joseph C. Brandt, President and Chief Executive Officer of ContourGlobal, said realising the KivuWatt project was a “hard-fought process”.

“We are proud to have catalysed his vision into a substantial operating project that is mitigating the threat of environmental catastrophe while providing clean, reliable electricity to Rwanda,” he said, noting that President Kagame’s support lent momentum to the project.

KivuWatt likely gained popularity for one of ContourGlobal’s main stated goals, to lower Rwandan energy costs. A majority of the electrical grid at the moment relies on diesel fuel generators despite Rwanda’s hydropower potential. With the estimated electrification to come from KivuWatt, the supply of power should help drive costs down.

Karl Schnadt, ContourGlobal’s Executive Vice-President and Chief Operating Officer, said that the facility will support at least an additional nine MW of power generation.

“We have successfully brought into operation this unique project and overcome the many challenges posed by this unprecedented attempt at largescale gas extraction on the lake. Our design and technology are performing even better than expected…We are undertaking the works to transform this unexpected gas into additional electricity for Rwanda’s grid by year-end.”

www.bankerafrica.com

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37 23/06/2016 10:02

SECTOR FOCUS ISLAMIC BANKING

Micro-Takaful—a Sudanese invention Prof. Badr El Din A. Ibrahim, Microfinance Consultant, gives an overview of the progress and challenges of constructing small-scale Shari’ahcompliant insurance

(CREDIT: Arthimedes/SHUTTERSTOCK)

S

udan is the inventor of Takaful. The first worldwide Takaful insurer was the Islamic Insurance Company of Sudan, established by Faisal Islamic Bank in 1979. When Faisal Islamic Bank commenced its operation 1978, there was a problem of insuring its assets and operations in an Islamic way. The Shari’ah Supervisory Board of Faisal Islamic Bank allowed the bank to open an insurance company based on cooperative insurance and fully conforms to the principles of Shari’ah

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in 1979, according to Islamic Insurance in Sudan, a report by Salah El Din Musa and Mohamed Suleiman.

Nowadays, there are 15 Islamic insurance companies in Sudan, supervised and controlled by the Insurance Supervisory Authority.

The latter falls under the direct supervision of the Ministry of Finance and Planning. Each company should have a Shari’ah Advisory Board, to fully authorise to monitor the Shari’ah compliance of the operations of these companies.

In Sudan, most of the insurance covering protection of productive assets against accidental damage, theft, fire, civil havocs, natural hazards/disasters, death of animals, crop failure, and road transport risks etc., has been taken up by large enterprises. The experience of insuring the assets and goods of small and microenterprises, particularly in rural areas and traditional sector, is still limited compared with large enterprises.

Nowadays, a number of insurance companies are offering Islamic insurance for microfinance clients (e.g.

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21/06/2016 14:17

Shiekan Company, Albaraka Company, Islamic Insurance Company, Watania Cooperative Insurance Company and United Insurance Company). However, Shiekan Insurance Company is taking a major role in this respect. Nevertheless, the experience of insurance companies in relation to microfinance transactions has been limited, but diversified and is growing fast.

MICRO-TAKAFUL IN SUDAN In Sudan, there were some microfinance insurance ideas set out before 2008, namely through four main events.

First, credit insurance—called ‘bond insurance’, which covers borrowers’ default (regardless of reasons for default whether anticipated or not)— was suggested by Shiekan Insurance Company. However, the idea was not approved by the company’s Shari’ah supervisory board, as the Board requires only a form of solidarity action, without collecting fees from borrowers. This issue remains debatable.

In 2005, the Islamic Insurance Company tried another idea related to credit for procurement of vehicles or real estate (mainly less expensive houses) taken by employees of different institutions, called a Mortgage Protection Plan. Loans were insured to cover death or disability of the borrower. In such cases lenders would get hold on mortgaged assets, as the insurance company will make full repayment of the remaining loan balance. The idea was marketed to several lending institutions but no prompt response was received.

Third, a proposal by the Microfinance Unit of the Central Bank of Sudan (CBOS) planned to establish a solidarity fund, Takaful Sandug, to protect microfinance clients. The proposed shareholders of the Fund were the CBOS, Ministry of Finance, Ministry of Social Welfare, Zakat Chamber and donors. The idea was approved by the country’s Shari’ah

China is a strategic partner of the UAE and, today, its most important source of imports.

–­ Prof. Badr El Din A. Ibrahim

Supervisory Board, but was later rejected by the Insurance Supervisory Board and the issue remains pending.

Finally, the idea of a Micro-Finance Guarantee Fund funded through the Zakat Fund, has lately been suggested without acceptance, according to Mustafa Abukasawi’s report, Micro Insurance: Opportunities and Policy Implications for Sudan.

These four suggestions of the early micro-Takaful experiments in Sudan have not been in operation because they are still debatable or unaccepted by the Insurance Supervisory Board.

However in 2008 nine banks and one social fund, the Social Development Fund of Khartoum, participated in an experimental wholesale microfinance programme launched by the Central Bank of Sudan. The funds allocated for the programme amounted to about $20 million using the current official exchange rate, increased to about $25.4 million. The number of clients covered also increased from 31,000 to 80,583 during the same period. Up to 2011, the number of clients covered increased to 129,905, which represents about 8.7 per cent of the potential demand in Khartoum State (1.5 million clients, according to estimates of PlanNet Finance’s 2007 market research report) and the percentage of coverage was around 3.2 per cent of potential demand, according to Abukasawi’s report.

By June 2015, the accumulated wholesale finance in this programme was about $87 million, and the number of clients increased to 255,623. The Microfinance Insurance Fund project was implemented by Shiekan Insurance Company in 2008 in collaboration with all banks participating in the microfinance experimental wholesale project. According to this credit insurance scheme banks insure 20-25 per cent of their microfinance loans, in response to a CBOS circular issued in this respect in 2010. The bank pays full premiums of its covered clients to the insurer and charges them to their clients, who repay the amount (to the bank) in instalments. Three parties are involved in the insurance scheme: Shiekan (insurer), the bank (policy holder) and the bank microfinance client (who pays the premium). According to the statistics of the Microfinance Unit of the CBOS value of insured loan transactions at the beginning of this microfinance experimental project amounted to about $9.2 million, representing 39.5 per cent of the active loan portfolio at that time.

Towards this end, in 2011 the CBOS also issued the Comprehensive Insurance Policy (CIP) to act as Insurance and a guarantee, covering: money lend, assets and Takaful, for physical disability or death (this is covered more extensively in my 2014 article, Micro-takaful—a Guarantee for Microfinance in Sudan, in the Takaful & Mutuality Journal).

Apart from a small number of individual microfinance projects financed by banks, the first comprehensive application of this micro-Takaful was a national project called Linking Small Traditional Agriculture Farmers with Markets in 2011.

The project of linking farmers to market was first covered by a joint cooperative Takaful fund (Joint Comprehensive Policy, JCP) established in the year 2008 and administered by Shiekan insurance company, and later by Watania Cooperative Insurance Company.

www.bankerafrica.com

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39 15/06/2016 09:13

TECHNOLOGY

Upwardly mobile: the many faces of mobile banking in modern Africa Banks need to take a two-pronged approach for rural customers and smartphone users, writes Tammo van Leeuwen, Marketing Strategy Director, CR2

A

t the end of 2014, there were more than 635 million mobile subscriptions in Sub Saharan Africa, with this predicted to rise to about 930 million by late 2019. It is also estimated that three in four mobile subscriptions will be internet inclusive.

Luckily, mobile banking in Africa is a topic which is being discussed endlessly as banks scramble to not only ensure they are part of the all-important financial inclusion story, but also as they try to understand how to service these customers in a cost-effective, efficient and convenient way.

While the African market is undoubtedly becoming more technologically sophisticated by the minute, many banks and commentators alike are now asking—is there still a place for standard mobile banking in a continent where 2016 will be seen as the first year ever that smartphone sales will outstrip basic mobile phone sales?

The simple answer to this is yes.

Due to the geographically dispersed populations and often unstable and

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intermittent internet connectivity in many regions, hardy solutions that can operate under these adverse conditions will always be needed by those wishing to bank without visiting a bricks-and-mortar branch. For banks tackling both the African market and fast growing markets in general, the key to success lies in having a wellrounded, holistic approach to mobile banking and successfully incorporating both a mobile solution and a mobile app solution into their portfolio. In order to service both customers in rural locations with unreliable access to internet as well as providing nextgeneration app services to millennials and tech-savvy customers, this two pronged approach is of paramount importance in letting customers bank their way through a combination of USSD, text and internet via apps and mobile web browsers.

THE FUTURE OF THE APP According to a recent study by Gallup, the percentage of adults with mobile phones in Africa ranges from a high

Tammo van Leeuwen

of 84 per cent in South Africa to a low of 16 per cent in the Central African Republic, signalling the potential for tremendous continued growth in the industry on the sub-continent. Mobile banking apps that can adapt and excel in these diverse environments are the undoubted future of mobile banking where internet connectivity can be unreliable and sporadic.

As such, having an app that allows users to perform tasks while they are offline which will then be actioned once

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they are connected will genuinely both enhance convenience for the customer and ensure that these transactions stay with the bank itself as opposed to being redirected to third parties. The app can then take care of the execution of any queued actions when the next internet coverage is available, simply.

Another example of a product of the future that is available right now through mobile app banking is merchant services. These can be deployed by banks to create an enhanced experience for their customers who are increasingly turning to their mobile devices to help them in each and every part of their lives. With this, partner retailers can publish their own agreed upon actionable campaigns and offers to customers right there on the banks mobile app. It enables them to give their instant response to the retailer directly through the app and accept or reject subscriptions to those campaigns. By allowing customers to opt-in by choice, security and privacy are always ensured.

At CR2 we kept all of these in mind to design our new mobile banking app, BankWorld V3 which is creating a buzz right now for exactly these reasons. By utilising a single platform to offer both cutting-edge mobile app services as well as SMS, USSD and mobile web, we help banks to provide a unique and personalised experience for each and every customer, right there in the palm of their hand.

banks can give their customers a market leading banking experience regardless of which device they use, or how reliable their access to an internet connection is. An integrated, fully inclusive mobile experience will inherently take the complexity out of providing banking technologies over multiple and disparate technologies and allow banks to both capitalise on constantly evolving technologies, and ensure that those who do not have access to the latest and greatest devices are still being serviced.

A HOLISTIC VIEW OF MOBILE

Another opportunity not to be missed by banks is the capability to provide affordable remittance services on mobile. In 2014 alone, about $67 billion in funds were transferred by African expatriates back to people on the continent. For many years, banking customers have resigned themselves to paying sometimes extortionate fees to companies such as Western Union to send and receive international remittances.

While we can clearly see that mobile banking apps are increasingly becoming the norm both in Africa and globally, we also have to address the needs of those who do not have access to smartphone technology. By offering customers mobile banking services which cover all mobile technologies including SMS, app, USSD and internet on mobile,

KEEP IT PERSONAL With mobile phones without a doubt the most personal tech device a customer has, it seems only natural to use it to give them personalised services and offerings, just like those they receive from retailers. The key here is to be aware that being truly personal means knowing your customer, their demands, their preferences and being there when they need you. While there are many ways to analyse customers’ data in order to build up a picture of their relationship and user patterns, there are very few like CR2’s BankWorld which are available across a single platform and can combine the information from each and every self-service channel to compile a totally 360-degree view of them as an individual.

MONEY VOUCHERS— THE MOBILE FUTURE OF REMITTANCE

With a mobile banking solution such as CR2’s BankWorld Mobile, mutual benefits for both the customer and the bank can be realised whereby the customer can save money on the remittance, while the bank can ensure that fees stay with them as oppose to being handed to an external provider.

With fees charged by mobile banking companies for transactions generally lower than traditional intermediaries like Western Union, the growth potential for financial phone applications appears enormous. This win-win situation can be realised by a product such as CR2’s Money Vouchers, which allows both domestic and international remittance via a customer’s mobile phone, the fund for which can then be collected by the recipient directly at the ATM. Importantly, this service will also give banks a chance to tap into this new and significant opportunity for revenue generation in a market which is only growing year on year.

THE FUTURE MEETS THE PRESENT The most important element for banks to take on board when they are deciding on a mobile banking strategy for Africa is to release that it is a continent of two halves. On one hand, there is a rapidly urbanising population in countries such as Nigeria and a smartphone revolution which shows no signs of stopping, while on the other are geographically dispersed customers with little access to reliable internet connection. Both sets of customers need to be serviced and banks need to take this opportunity to truly view their mobile offering in a holistic way. By taking advantage of evolving mobile technologies and applying them to meet the challenges and disparity in this region, banks can take this most trusted device and offer all customers the convenience and experience that will let them bank their way.

www.bankerafrica.com

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41 20/06/2016 13:39

GOVERNANCE

F

Have you declared your offshore interests?

South Africa is increasingly linking up with foreign governments on tax reporting, making it increasingly important to stay compliant, says Tony Barrett, FNB Financial Advisory Wealth Manager

The new regulations are highly technical and it’s better to play it safe, says Tony Barrett, FNB Financial Advisory Wealth Manager

42 page 42-43 FNB editorial.indd 42

or most investors, an offshore component to their financial portfolio is an integral part of the wealth management process and an essential diversification tool in an interlinked global marketplace.

There is nothing untoward about having an offshore portfolio, provided your financial advisor has ensured you are fully tax compliant and your accounts have been disclosed to the relevant authorities. South Africans are allowed by law to invest up to ZAR 10 million outside South Africa on an annual basis, on the proviso that tax clearance has been given by the South African Revenue Service.

Until now, a lack of co-operation between different countries has created some grey areas, but increased global vigilance and the launch of the Organisation for Economic Cooperation and Development’s (OECD) new Automatic Exchange of Information portal will increase the necessity for compliance, said Tony Barrett, FNB Financial Advisory Wealth Manager.

While South Africa has joined a raft of developed world economies in signing up for the portal, it is important to note that the declaration of offshore interests has long been on the country’s radar.

“The first offshore exchange control and income tax amnesty appeared in 2003 and a second similar amnesty followed in 2010,” Barrett said.

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Version three of the South African amesty could, therefore, literally be the last chance saloon for offenders.

– Pravin Gordhan, South Africa Minister of Finance, in his 2016 Budget Speech

In his 2016 Budget Speech, Minister of Finance Pravin Gordhan announced another exchange control and tax amnesty for errant South African taxpayers. Under the OECD programme, data will be collected in 2016 and the first exchange of information between co-operating countries will take place in 2017. Therefore, with this automatic exchange of information on the horizon, the current amnesty is likely to be the last one offered, Barrett said.

“There will be no place to hide for offenders,” he said. “So there will be no need to offer further amnesties as the information will be readily available.

Version three of the South African amnesty could, therefore, literally be the last chance saloon for offenders.”

National Treasury has outlined the terms of the third amnesty which, from an exchange control perspective, are not dissimilar to the previous two amnesties.

Where the owner wishes for the funds to remain offshore, there is a 10 per cent penalty on funds that are in breach of exchange control regulations.

If the funds are remitted back to South Africa, only a five per cent penalty is payable. These penalties must be paid from the offshore funds and where there is a lack of available offshore cash, such as for property holdings, the penalty can be paid from rand-

based sources, but an extra two per cent additional penalty is added.

“There are, of course, also tax implications, with National Treasury advising that 50 per cent of taxes owing would be due and payable for the last five tax years. This is a point on which some clients may need professional tax opinion as there has been no detail given as to how this 50 per cent would be computed.

“Interest would be charged on outstanding taxes, but no penalties would be levied. It is presumed that applicants would need to re-open previous assessments on their SARS e-filing profile and resubmit tax returns for these periods,” he noted.

Both the exchange control regulations and income tax Acts are

extremely technical in nature and potential contravention may well be error of omission, says Barrett, stressing the importance of taking appropriate advice in this regard.

With the amnesty application period running for six months, from 1 October 2016 to 31 March 2017, Barrett believes that South Africans have a generous opportunity to regularise their affairs.

“South African residents who believe that they may have funds offshore that contravene either or both exchange control and tax regulatory provisions should take professional advice to ensure that, if necessary, they avail themselves of the terms of the 2016 amnesty,” he concluded.

Snapshot: South Africa All three of the major ratings agencies have recently released commentary, and in some cases ratings changes, for South Africa and its major financial institutions.

Moody’s Investor Services, in its May annual report on South Africa, revised its outlook for the banking system to negative from stable. The country’s subdued economic growth, depreciated currency and weakened operating conditions have challenges banks’ asset quality and profitability—Moody’s projects that non-performing loans (NPLs), for instance, will rise to four per cent by end-2017 compared to 3.1 per cent at end-2015.

Standard & Poor’s Rating Services (S&P) also released a statement saying that South African banks face profitability pressures over the next few years.

“The outlook on all banks we rate in the country turned negative at the end of 2015, reflecting the negative outlook on the sovereign, the prospect of slower economic growth, rising interest rates and inflationary pressures on the banking system’s asset quality,” said S&P Credit Analyst Matthew Pirnie. S&P expects these trends to continue with top-tier banks facing credit losses on their lending activities ranging between 0.9 per cent and 1.2 per cent in 2016, worsening by another 20 basis points in 2017.

On 9 June, the South African Government released a statement welcoming the recent Fitch Ratings that affirmed South Africa’s long-term foreign and local currency debt at ‘BBB-‘ and ‘BBB’ respectively. However this follows the downgrade Fitch announced in December 2015. The foreign currency bond rating remains one notch above sub-investment grade whereas the domestic currency bond rating remains two notches above sub-investment grade.

www.bankerafrica.com

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43 23/06/2016 10:05

INVESTMENTS

Paul Biya gives the welcoming address calling Cameroon an ‘Africa in miniature’ (CREDIT: Sébastien Gracco de Lay).

Tony Elumelu, UBA Group President, says Cameroon is ‘a great place to invest’ (CREDIT: Sébastien Gracco de Lay).

The ‘lynchpin of stability’— and growth?

Cameroon has weathered regional insecurity to emerge as a largely stable and fast-growing economy, but big hurdles still remain

O

n 20 May, Cameroon celebrated its 44th National Day, just two days after its inaugural investment conference brought hundreds to the capital. Parades were held on the central thoroughfare of Cameroon’s capital city, Yaoundé, under banners reading “Unity in Diversity” and “All behind President Biya to eradicate Boko Haram”—highlighting the top risks faced by a country with huge potential but significant challenges ahead.

Cameroon shares a 1,600 kilometre land border with Nigeria, where insurgent group Boko Haram has upended entire

44

provinces and spilled over into pockets of Cameroon. The security threat has mostly been contained to the border area, but not without effort—authorities have sent thousands of Cameroonian soldiers and police officers to contain the threat, even enlisting the help of American authorities in improving counter-terrorism efforts. Along with its continued peacekeeping efforts for another neighbour, the Central African Republic (CAR), Cameroon has become what US Secretary of State John Kerry, on the occasion of National Day, called “a lynchpin of regional stability”.

As Cameroon looks to become a key gateway to Central Africa and an emerging market in the region, these threats remain significant, but the country’s economic growth plows on in a largely stable domestic environment.

The Government is now mounting a significant campaign to attract foreign investment into the country in the hopes of improving infrastructure and harnessing its largely untapped raw materials market.

Specifically, in a bid to bring Cameroon to emerging country status by 2035, the country’s authorities are

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21/06/2016 14:19

Ministers, army officials and private investors gathered at the ‘Investing in Cameroon’ conference just days before the country celebrated its National Day (CREDIT: Sébastien Gracco de Lay).

looking to attract investments into 25 major infrastructure projects totalling EUR 2.5 billion.

The investment opportunities, and Cameroon’s advantages for investors, were showcased at the inaugural “Investing in Cameroon, land of attractiveness” conference on 17-18 May that brought a reported 800 attendees to Yaoundé.

Paul Biya, President of the Republic of Cameroon, outlined the country’s Vision 2035 in his opening address, in which he also stressed the country’s welcoming policies.

“Our objective is to reach emergence by the horizon of 2035. All our public policies are oriented in this direction and in particular the management of our public finances,” he said, noting that Cameroon’s expanding fiscal policy emphasises the quality of the expenditure, while its national debt is contained around 25 per cent of GDP and “subject to strict monitoring”.

“It must remain at a sustainable level consistently, while providing us productive financing,” he said.

“We are confident that these conditions will attract the interest

Our objective is to reach emergence by the horizon of 2035. All our public policies are oriented in this direction.

– Paul Biya, President of Cameroon

of investors,” he said, adding that Cameroon’s diversity of environments and business activities have earned it the nickname ‘Africa in miniature’.

Cameroon’s GDP has grown at an annual rate of more than five per cent since 2013—5.9 per cent in 2014; 5.7 per cent in 2015. The most recent African Economic Outlook (AEO) projects that it will slow to 5.3 per cent in 2016 due primarily to external factors such as lower commodity prices. However Cameroon is better positioned than several of its neighbours to weather low oil prices and China’s slowdown—its secondary and tertiary sectors grew by 8.4 per cent and five per cent respectively in the last year, while construction grew by 7.3 per cent.

The other main selling point that Cameroonian authorities pushed was the potential market at investors’ fingertips. According to a report issued by the Government at the conference, “Cameroon borders a potential market of 300 million consumers, including Nigeria, DR Congo, and Sudan [sic]”.

The report also boasted Cameroon’s young and educated population (75 per cent under the age of 25, and 23 million educated citizens in 2014), as well as its agricultural and raw materials potential through arable land, fisheries and large forests.

Though year-on-year GDP growth has remained strong, it is below the six per cent annual target set in the country’s 2010-20 Growth and Employment Strategy Paper (GESP) with the AfDB, an integral part of Cameroon’s Vision 2035 framework. But Cameroon is also set to weather new economic challenges fairly well—while the IMF has hedged growth projections by one per centage point for the continent as a whole, Cameroon’s diversified economy has kept it on track. cont. overleaf

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45 23/06/2016 10:10

INVESTMENTS

cont. from page 45

We hope the Government will take into account the cries of investors, foreign and domestic, to enter into economic partnership with Nigeria.

– Paul Fokam, Afriland Group Chairman

A key element of the GESP framework is its focus on inclusive growth to draw in rural communities and close development gaps. With pressures on both its western and eastern borders, including the ensuing refugee flow from the CAR crisis, this has proved tough— particularly in light of the bulging youth population and their demand for jobs and livelihoods.

‘LAND OF ATTRACTIVENESS’ The first day of the conference featured a series of high-level panels with panel discussions including several Cameroonian ministers and private sector leaders such as Afriland Group Chairman Paul Fokam and UBA Group President Tony Elumelu.

“As a long-time banker and entrepreneur, I have learned how to spot a good investment and I am pleased to affirm to all investors present that Cameroon is a great place to invest,” Elumelu said, to much applause.

“Cameroon’s $28 billion economy is doing very well and growing at an impressive rate…this is the right time to think about what it takes to attract and keep investors,’ he added.

Minister of Economy Louis-Paul Motaze said that the country was keen to form public-private partnerships for projects that would boost non-oil revenue in particular.

Cameroon Minister of Finance Alamine Ousmane Mey noted that public debt has risen to 25 per cent of GDP in 2015, from 18 per cent five years earlier,

46

but that the country’s figures were still below global averages.

However Afriland’s Fokam brought up some of the challenges faced by financial institutions. Whilst sharing the stage with Minister Mey, Fokan noted that corporate tax had decreased from 38 per cent to 33 per cent and that “in terms of attractiveness, we hope this will go down even further.”

He also took the opportunity to note Cameroon’s regional context. While the country currently boasts a significant

share of the Economic Community of Central African States (CEMAC) activity—it accounts for 40 per cent of GDP production according to the AEO—and in many ways is a bridge between the West and Central African economies, Fokam passionately called for stronger inter-regional relations.

“We hope the Government will take into account the cries of investors, foreign and domestic, to enter into economic partnership with Nigeria,” Fokam said.

Investment flowing through Yaoundé canal Though the Government is campaigning to finance two dozen large-scale infrastructure projects, several are already underway. One in particular, a canal through the capital city, began in 2006 with a CFA 20.8 billion ($40 million) investment by the African Development Bank (AfDB). The canal is designed to control regular flooding from the stream that already cuts through town, ideally alleviating water-borne illnesses but also building capacity for people and businesses operating its zone. For the second phase of the project, expected to reach completion in December 2018, the Government secured funding from the AfDB, l’Agence Française du Developpment (AFD) and the Fonds pour l’Environnement (FEM).

In October 2015, the Yaoundé City Council announced that a CFA 47.9 billion ($82.8 million) contract went to French construction group Razel to build a further 2.6 kilometres of the canal. The next phase also reportedly includes pedestrian walkways and beautification efforts for the vicinity of the canal.

The Yaoundé canal has been a multi-million dollar project will regulate flooding and water-borne illness in the city (CREDIT: Sarah Owermohle/Flickr).

www.bankerafrica.com

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23/06/2016 10:07

11th Islamic Business & Finance

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23/06/2016 14:43

OUTLOOK

‘When women win, Africa wins’ The African Development Bank (AfDB) is leading a new $3 billion fund to close the astronomical gap for women’s access to finance

Geraldine Fraser-Moleketi, AfDB Special Envoy on Gender (pictured here at a United Nations International Telecommunications Union forum on digital development) is spearheading the AfDB’s new initiative for women’s access to finance (CREDIT: ITU/S. HERNANDEZ VENEGAS/FLICKR).

T

he African Development Bank (AfDB) Annual Meeting in Lusaka, Zambia, covered a lot of ground, from SME finance to renewable energy projects, and education to climate change. However one subject that came up repeatedly in expert discussions and project presentation was the role of women in Africa’s next stage.

48 page 48-49 Outlook.indd 48

One such session saw Geraldine Fraser-Moleketi, the AfDB’s Special Envoy on Gender, take the stage to announce the Bank’s new programme Affirmative Finance Action for Women in Africa (AFAWA), which has the goal of raisimg $300 million for financing African women. The AfDB said in a statement that its full objective is to run a $3 billion fund through its non-concessional

window that is channelled to women through intermediary institutions.

The announcement led to a debate on what support for women should look like, and whether affirmative action is the right path. Furthermore, who would such affirmative action programmes target?

Fraser-Moleketi cited a 2011 study by the International Finance Corporation (IFC) that found that three to four million formal womenowned enterprises had an estimated total financing gap between $21 billion and $26 billion. The AfDB estimates the currently gap to be $30 billion.

According to other AfDB statistics, only 16 to 20 per cent of women in Sub Saharan Africa are able to access longterm financing from formal financial institutions. The numbers also indicate that although women-owned business enterprises account for only a quarter of all businesses in Sub Saharan Africa, the median capital available to male entrepreneurs is more than twice that of women is some of Africa’s largest economies, including Nigeria and Kenya.

By region, the statistics vary and present their own specific challenges— in Kenya, despite women owning 48 per cent of the micro and small enterprises, they access only seven per cent of the credit.

At the discussion in Lusaka, panellists—including Sahar Nasr, Egypt’s Minister of International Cooperation; Jennifer Riria, Group Executive Officer for Kenya Women; Ngozi Okonjo-lweala, Nigeria’s former Finance Minister; and Marisa Lago from the US Treasury—debated the best way to close these gaps.

According to Ngozi Okonjo-Iweala, there is need to invest in data, citing the recent ‘Women Deliver Conference’ in Copenhagen, where the Bill and Melinda Gates Foundation announced an $80 million fund to invest in collecting data of the value added by

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21/06/2016 14:25

To avoid distortion in the finance sector, we need to avoid using the term ‘affirmative action’ and use a more inclusive term such as ‘diversification.’ What women need is equal opportunity but not special treatment.

– Sahar Nasr, Egypt’s Minister of International Cooperation

women. She advised that the AfDB partner with the Foundation on data collection to better guide the AFAWA initiative.

She added that Africa has one of the world’s highest female labour participation rates at about 63 per cent compared to 50.3 per cent globally, but that women’s contribution to the economy is often undervalued.

“If we have women who are very active but they do not have access to something that can make them more productive in the economies, then we are missing something,” she said.

Egyptian Minister Sahar Nasr cited the long-held stereotype that women are high-risk lending customers, saying that data shows the opposite, with women having their non-performing loans lower than those of men across the globe.

She called for affirmative action in the area of legal and regulatory framework because African tradition stands in the way of most women to own property, which limits their access to finance efforts as they do not have collateral.

“Also, to avoid distortion in the finance sector, we need to avoid using the term ‘affirmative action’ and use a more inclusive term such as ‘diversification.’ What women need is equal opportunity but not special treatment,” she said.

All panellists agreed that African central banks have a central role to play in reforming legal and regulatory frameworks and remove barriers that play against women. Marisa Lago in

particular emphasises the need for a legal framework to facilitate financial access.

A more radical view came from Kenya’s Jennifer Riria, who said women activists have talked so much but done so little over the years. She called for action backed by clear KPIs to be able to measure the walk against the talk.

“After all the speeches by these clever people I do not know what to say other than the truth. I come from 26 years of working with low-income Kenyan women, now three million in number.

“From UN conferences in 1975, to Beijing in 1995 to today, we have had meetings like this; we shall continue

talking and talking, but we are like a team that gets to the pitch, half the team plays and the other half does nothing. This is what we have done over the years,” she said.

Illustrating the importance that women have in the AfDB’s upcoming goals, the President of the AfDB, Akinwumi Adesina, actually walked into the panel discussion at one point to share his views.

“When women are supported, they deliver. When you empower women, everything changes. When women win, Africa wins. About 97 per cent of women pay back their loans and the three per cent are stopped by husbands on their way to pay,” he said.

Encouraging women entrepreneurs According to AfDB data, 47 per cent of women face major obstacles to access the funding they need to develop their businesses, compared with 44 per cent of their male counterparts. With only 20 per cent of women on the region reporting that they have access to long-term funding, the gap has grown vast.

The AfDB plans to contribute $150 million to the new AFAWA initiative and achieve the rest through partnerships with multilateral and development finance institutions. Besides a potential affirmative action model, leaders have discussed capacity building for women; creating loan guarantee funds and social development funds specialising in microfinance; taking steps with the commercial banks to ensure facilities were granted to women, by opening dedicated credit lines for funding SMEs run by women entrepreneurs; budgeting for a gender component in the respective Finance Acts of the Bank’s regional member countries; granting title deeds to land to women in rural areas; and increasing access to business development services such as business incubators.

Source: African Development Bank

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THE VIEW PICTURE OF THE MONTH

(L-R) Kenyan Marion Moon explains her start-up, Wanda Organic, to Karen Freeman, USAID Mission Director for Kenya, Catherine Mulwa, USAID delegate, and Michael Nicholson, KIE Contracting representative. Moon made her presentation at a recent event for the “Feed the Future Kenya Innovation Engine”, a USAID/Kenya funding programme for food security initiatives, which have increasingly become a priority of development funding (CREDIT: USAID/FEED THE FUTURE KENYA INNOVATION ENGINE/FLICKR).

POLL

This month we asked our website readers at bankerafrica.com

What is the number one priority for African development?

33% 29% 24% 14%

TRANSPORT INFRASTRUCTURE HEALTHCARE/IMMUNISATION EFFORTS FOOD SECURITY ECONOMIC DIVERSIFICATION

33%

29%

24%

14%

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