#37 - August 2016

ISSUE 37

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ISSUE 37 I AUGUST 2016

CONTENTS

ISSUE 37

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Dr. Abdul-Nashiru Issahaku, Governor of the Bank of Ghana A CPI Financial Publication

PLUS:

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OPINION

South Africa’s small business

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COUNTRY FOCUS

Smart growth for GT Bank

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Dubai Technology and Media Free Zone Authority

‘Safe, sound and stable’ Dr. Abdul-Nashiru Issahaku, Governor of the Bank of Ghana

‘Safe, sound and stable’

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SME FINANCE

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ISSUE 37

Editor’s Letter Hello readers,

A

t the start of August, the BBC announced something a bit surprising—South Africa had pushed Nigeria out of the top spot for ‘biggest economy’ in Africa, just two years after Nigeria toppled the traditional leader. Now Nigeria has certainly been struggling, between lower oil prices, a recently floated currency that has fallen sharply against the dollar, and several unpopular policies to get things on track (one, on remittances, pg. 6). However the surprise is that South Africa would regain the title, when the country is not doing so hot itself—GDP growth is not expected to reach one per cent this year, and just one more quarter of contraction will officially put South Africa into recession territory.

The pressure of an increasingly stifled workforce was reflected in South Africa’s recent elections, where the incumbent political party, in power since apartheid ended, lost more ground than ever before. We have two views on what South Africa needs next in this issue—a call for land reform (pg.

14) and a bid to bring business to SMEs (pg. 16).

As for Nigeria, expect a lot more in our Country Focus next month.

The third-largest Africa economy is not too far behind either of the beleaguered leaders. However Egypt has also struggled this year to keep growth on track, and rumours are swirling that it may follow in Nigeria’s currency-floating footsteps.

While Egypt remains a key economy in the region, the outlook in the short-term is bleak (pg. 49).

But speaking of short-term hardship and longterm gains, our Country Focus this month checks in on Ghana’s austere, IMF-led budget. The measures are not loved by many Ghanaians themselves, but as Minister of Finance Seth Terkper said last month, the country is finally on a turnaround (pg.

30). Bank of Ghana Governor Dr. Abdul-Nashiru Issahaku, our cover interview, also expresses optimism for Ghana’s future growth and even its currency goals, while the Managing Director of GT Bank Ghana looks ahead to how banking can grow into the digital space (pg. 26).

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

Until next time,

22 IN THE NEWS 6 News analysis: Queues likely at currency exit?

7

07

Essential financial news from around the continent

10 Spotlight: Morocco HAPPENINGS 12 West Africa—the next Islamic banking hotspot?

OPINION 14 Land reform—it is possible without

12

bloodshed South Africa is facing a crisis in reform policy and ANC complacency, writes Georgina Enzer, Managing Editor, CPI Financial

16 South Africa’s small businesses hold

the keep to growth Inequality persists, but SME-friendly policies and national unity can help close the gap, writes Minister Lindiwe Zulu

16

MARKETS 18 Overall slump, a few spikes in H1 M&A

Despite a few big deals it was a quiet half year, according to new analysis

COVER STORY 22 ‘Safe, sound and stable’

Governor Dr. Abdul-Nashiru Isshaku remains confident in the Ghanaian banking sector’s ability to grow and transform

26

COUNTRY FOCUS: GHANA 26 Growing smart—GT Bank goes digital Lekan Sanusi, Managing Director of GT Bank Ghana, discusses industry risk, Ghana’s economy and how GT Bank is growing

28 An investment hotspot for Dubai

Hamad Buamim, President and CEO of Dubai Chamber, on why its sights are set on Ghana

30

30 An unpopular budget, a necessary

Sarah Owermohle

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

turnaround Ghana’s efforts to turn around an unstainable debt balance continue steadily—but what does this mean for investors?

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CONTENTS

ISSUE 37

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

CASE STUDY 34 Setting up shop

36

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

Multinationals looking to go pan-African are shifting on home base cities

TRAILBLAZERS 36 Sustainable structures—and price tags

Casas Melhoradas, a project to rethink slum housing, builds foundations in Maputo

SECTOR FOCUS: SME FINANCE 38 Reaching African champions

40

Mark Napier, Director of FSD Africa, talks about the initiative’s multi-pronged approach

TECHNOLOGY 40 Rise of the machines

Artificial intelligence is experiencing an investor surge according to new reports

GOVERNANCE 42 Improving operational efficiency

42

Greg Rung, Partner at Oliver Wyman, on how to boast bank productivity

slows EY finds that international investors and African economies are ‘staying the course’

OUTLOOK 48 The Nairobi consensus—to keep at

49

globalisation UN representatives convened at UNCTAD 14 for a new set of goals

49 Few bright spots for MENA growth

this year With low oil prices and GCC slowdown, North Africa is subdued

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of stability?

Cameroon—lynchpin

PLUS:

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MARKETS

Nigeria’s new FX structure

24

WAEMU

Staying afloat on trade

46

OUTLOOK

An ‘inopportune’ exit

16

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OPINION

small busines s

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COUNTRY

Smart growthFOCUS for GT Bank

38

SME FINAN

CE Reaching Africa’s champ ions

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FOCUS KENYA COUNTRY crisis confidence

Banking: creatively disrupted

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u Issahaku,

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NEWS ANALYSIS

Queues likely at currency exit?

A new policy in Nigeria restricts remittances to just three operators—leaving many concerned for the future of billions of dollars’ worth of inflows

T

he Central Bank of Nigeria (CBN) has restricted international remittances to just three money transfer operators (MTOs) in an attempt to maintain exchange rate stability following weeks of volatility for the newly floated naira.

Western Union, MoneyGram and Ria are now the only three MTOs able to channel Nigerian remittances, estimated to total $22 billion in 2015 alone by World Bank figures.

Besides exchange rate concerns, the Bank also attributed the decision to security concerns for consumers remitting to and from Nigeria. In a warning issued on 2 August, it advises Nigerians to “beware of the unwholesome activities of some unlicensed International Money Transfer Operators” but in fact several licensed MTOs were also effectively banned with the decision.

The sudden restriction follows a policy change last year that required all MTOs to have a net worth of at least $1 billion, 10 years’ experience and presence in at least 20 countries. Several smaller MTOs were pushed out by the new requirements, but managed to continue operations through bulk forex sales with partners.

WorldRemit, a fast-growing online remittance start-up, is one operator that suddenly found itself cut out by this month’s regulations. WorldRemit founder and CEO, Ismail Ahmed said, “This move is arbitrary, inexplicable and hugely detrimental to the Nigerian diaspora who rely on hundreds of money transfer companies and

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According to the World Bank, remittances from England to Nigeria total $3.8 billion a year—and most often go through operators like MoneyGram, pictured here in Manchester (CREDIT: TUPUNGATO/SHUTTERSTOCK).

banks, providing them with choice, convenience and competitive pricing.”

Ahmed also criticised the suddenness of the decision, saying that MTOs and banks had no warning. WorldRemit sends about 40,000 remittances to Nigeria a month.

“This reverses the progress made by the country when the Nigeria Central Bank banned Western Union’s exclusivity agreements that had created a near-monopolistic position in the international money transfer market. Western Union controlled 78 per cent of the market share when CBN outlawed exclusivity agreements with local banks,” Ahmed said.

Sudhesh Giriyan, COO of Xpress Money, an MTO with 17 years’ experience and operations in 160 countries, also cited the damaging effects of exclusivity agreement. “In the last three to four years, the cost of remittances has come

down drastically…it helps everyone,” Giriyan said. “So all the good that has been done in the last few years would have gone for naught,” he said.

However Giriyan remained optimistic that the situation would continue developing. “I’m sure that many parties are engaging with the regulator in Nigeria, and I’m sure in the coming days it will be clearer. Also in terms of licensing, from the feedback we’ve had, there is no clear picture as yet, so we’re watching and waiting at this point.”

“Ever since the decision was taken

by CBN, there has been an impact on business from a Nigerian perspective, but we are very optimistic that there will be some positive developments down the line,” he said.

The Central Bank said in a statement that it would “not condone any attempt aimed at undermining the country’s foreign exchange regime.”

www.bankerafrica.com

24/08/2016 15:19

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Standard & Poor’s (S&P) affirmed African Development Bank ‘AAA/A-1+’ long- and shortterm ratings with a stable outlook due to its very strong business and financial profiles and ‘extraordinary shareholder support’.

Moody’s assigned a first-time local currency deposit rating of B1 with stable outlook to CRDB Bank, noting its leading role in the Tanzanian banking sector but also the country’s ‘very weak’ macro profile.

Capital Intelligence affirmed Attijariwafa Bank’s ‘BBB’ rating with a stable outlook, supported by solid capital, sound provisioning coverage, reasonable profitability, and a high level of liquidity.

SOVEREIGNS Moody’s and S&P downgraded the Republic of Congo due to its missed payments on its $478 million notes due 2029, originally issued under a restructuring of London Club debt in 2007.

Moody’s bumped it from B3 to B2 with review for further downgrade; S&P lowered it to ‘SD/D’ (selective default from ‘B-/B’.

ON THE RECORD

The world has never been wealthier than it is today. Yet, the levels of inequality remain high and keep increasing. To reverse this trend, collective action is needed from governments, multilateral institutions, the private sector, civil society and all stakeholders.

— Akinwumi Adesina, the President of the African Development Bank

A QUICK WORD Pinsent Masons to launch infrastructure-focused legal practice in South Africa

International law firm Pinsent Masons has announced plans to launch an infrastructurefocused practice in Johannesburg, South Africa.

British SME wins Ghana mining contract

United Kingdom-based SME Dints International has won a significant mining contract in Ghana with support from UK Export Finance (UKEF), the UK’s export credit agency (ECA).

South African Reserve Bank to focus on payment innovation

The South African Reserve Bank (SARB) supports local payment industry innovation and development in “time of unprecedented change”, says Francois Groepe.

IMF approves $304.7 million facility for Madagascar S&P affirmed Mozambique’s ‘CCC/C’ long- and short-term foreign currency and ‘B-/B’ longand short-term local currency sovereign credit ratings and took it off CreditWatch, which it was placed on after hidden debts came to light earlier this year.

On 27 July 2016 the Executive Board of the International Monetary Fund (IMF) approved a SDR 220 million ($304.7 million) arrangement for Madagascar.

Moody’s assigned B2 first-time issuer rating to Cameroon with a stable outlook, limited by low economic and institutional strength, but supported by its CEMAC membership.

Moody’s also assigned B2 first-time issuer ratings to the Rwanda with a stable outlook, citing low economic strength but strong institutional strength and moderate fiscal strength, with slight potential for political risk.

S&P revised its outlook on Angola’s ‘B/B’ ratings to negative due to slower-than-expected economic growth largely due to lower oil prices’ dampening effect.

$43.5 million is immediately available for disbursement to Madagascar (pictured, Credit: Dennis Van de Water/Shutterstock) For these stories and more, visit www.bankerafrica.com

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IN THE NEWS

AfDB arranges $1.34 billion ‘jumbo’ loan to Eskom The African Development Bank (AfDB) and South Africa’s power utility, E s ko m , s i g n e d l o a n facilities for a $1.34 billion towards Eskom’s 20162020 capital expenditure programme. The loan will go towards investments in new generation, plant refurbishment, transmission lines, and c apacity building in excess of $17 billion, the AfDB said in a statement.

Eskom power lines in South Africa (CREDIT: GAVIN FORDHAM/FLICKR).

South Africa has struggled with load shedding and energy reliability. The AfDB said that the ‘jumbo’ loan as it called it, will boost electricity generation in Africa by nearly 10 per cent. The Bank has arranged $965 million through participation arrangements with nine commercial banks, which include: Bank of China, Bank of Tokyo-Mitsubishi, CaixaBank, Citibank, HSBC, JP Morgan Chase, KfW IPEX Bank, Siemens Bank, and Standard Chartered. The operation represents the largest syndicated A/B Loan arranged to-date in Africa. By 2020, Eskom’s capital expenditure programme is expected to increase South Africa’s electricity generation by nearly 11,000 MW and expand its transmission network by over 9,500 kilometres.

African Risk Capacity Insurance appoints former IFC Director Dolika Banda as CEO The African Risk Capacity Insurance Company Limited announced the appointment of former IFC Director Dolika Banda as Chief Executive Officer, effective from 7 September 2016. She will take the reins from Dr Simon Young, who was appointed CEO in 2014 after playing a leading role in the development of the ARC programme. Young oversaw payouts of $26 million over Sahel droughts and led the inclusion of key disasters programmes such as tropical cyclone and flood insurance, will continue to serve in an advisory capacity.

“ARC Ltd is only what it is today because of Dr. Young’s outstanding leadership. He has created a solid base for this innovative new instrument that is changing the way Africa takes on the climate challenge,” Chairman of the ARC Ltd Board of Directors, Dr. Lars Thunell, said. “Ms. Banda’s incomparable experience across the continent, encompassing both the private and the public sectors, is a perfect fit for ARC, itself a privatepublic partnership.”

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Djibouti is the latest to join the Africa Finance Corporation

D

jibouti has become the 14th member of AFC and is the third east African country to join the Africa Finance Corporation (AFC), an international investment grade multilateral finance institution investing in key infrastructure projects across Africa.

Ali Guelleh Aboubaker, Minister of Investments in the Office of the President of Djibouti, said, “The Government of Djibouti is committed to proactively investing in essential infrastructure to drive economic growth and doing what we can to attract international private investors to infrastructure investment opportunities. We look forward to working with AFC to deliver projects with real and positive economic and social impact across the country.”

The AFC was established in 2007 with an equity capital base of $1.1 billion, and has a current balance of $3.2 billion. In May 2015, AFC successfully concluded a debut $750 million Eurobond issue under its $3 billion Global Medium Term Note Programme (GMTN) that was seven times oversubscribed.

IFC loans EUR 25 million to Tunisia’s BTK International Finance Corporation (IFC), a member of the World Bank Group, is providing a EUR 25 million loan to the Tunisia’s Banque TunisoKoweitienne (BTK), part of BPCE Group. The financing is expected to help BTK expand its loan portfolio and reach out to a greater number of smaller businesses, IFC said.

“This loan will help our entrepreneur clients access the financing they need to expand their businesses,” Wajdi Koubaa, the acting CEO of BTK, said. “That is crucial because SMEs are the backbone of the Tunisian economy and vital for job creation.”

Nearly 30 per cent of micro, small, and medium enterprises in Tunisia do not have access to bank loans or lines of credit, according to IFC data.

www.bankerafrica.com

24/08/2016 15:21

Libyan Local Investment & Development Fund (LLIDF) announces string of projects

A

multi-million redevelopment of Tripoli International Airport is getting ready for take-off following the Libyan Local Investment & Development Fund’s (LLIDF) appointment of PricewaterhouseCoopers (PwC) as its strategic advisor, PwC announced.

PwC will support feasibility studies for redevelopment of Tripoli Airport, and as well as the development of specialised housing and solar energy. The agreement, signed in London by Bader Ben-Othman, CEO of LLIDF, and PwC partners, Ian Baxter, Michael Burns, Ahmed Baitelmal and Bernhard Haider, marks an important milestone in the development of Libya’s economy.

“These projects are absolutely critical for Libya’s needs in terms of stabilisation, socioeconomic benefits and the alleviation of hardship,” Bader BenTripoli International Airport in 2011, before renovations Othman said.

(CREDIT: BEN SUTHERLAND/FLICKR).

Tanzania needs vigorous reforms, says IMF

O

n 18 July 2016, the International Monetary Fund (IMF) completed the fourth review of Tanzania’s economic performance under the programme supported by the Policy Support Instrument (PSI), concluding that the country needs growth-oriented policy.

Min Zhu, IMF Deputy Managing Director and Acting Chair, said following the review that despite strong growth with the PSI,Tanzania needs to look at reforms for development and further growth. Growth has remained close to seven per cent and inflation is moderate, but Zhu said that while most programme targets for end-2015 were met, progress on structural reforms slowed due to the transition to the new government.

On the banking sector in particular, Zhu said that, “Despite significant progress in recent years, financial development remains low. Further development would support higher growth, as well as improve the overall effectiveness of macroeconomic policy.

Beyond credit growth, financial development will require further improving access, particularly for businesses, and reducing high borrowing costs. Further development of the interbank and government debt markets is also desirable.”

Absa partners with UnionPay for Chinese customers

IMF confirms talks with Egypt for programme

Absa partnered with Chinabased UnionPay International (UPI) to allow UPI cardholders living in or visiting South Africa to transact at any of Absa’s point-of-sale (POS) terminals and withdraw cash at Absa’s ATMs. UnionPay said that the partnership with Absa will Larry Wang, Chief Business Development Officer of UPI (L) and Craig Bond, Chief Executive: Absa see the local ATM and POS Retail and Business Banking (R). acceptance of UPI cards rise to over 75 per cent, vastly improving access for Chinese travelers.

According to Statistics South Africa, the total number of Chinese tourists who visited South Africa in October last year increased by 85.6 per cent to 7,902 compared with the same month in 2014.

Around 47,000 Chinese tourists visited South Africa last year, making South Africa one of China’s fastest growing tourist destinations.

After media queries about Egypt’s involvement with the International Monetary Fund (IMF), Masood Ahmed, IMF Director of the Middle East and Central Asia Department at the said that the Fund is negotiating with Egypt for a programme.

In a statement, Ahmed said, “The Egyptian authorities have asked the IMF to provide financial support for their economic program.

We welcome this request, and look forward to discussing policies which can help Egypt meet its economic challenges. Our goals are to help Egypt return to economic stability and to support strong, sustainable and job-rich growth.

“An IMF staff team, led by Mission Chief for Egypt Chris Jarvis, will visit Egypt starting July 30. The visit is expected to last about two weeks. We will communicate on the outcome when it concludes.”

www.bankerafrica.com

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NEWS SPOTLIGHT MOROCCO

IMF approves $3.47 billion for Morocco, commends recent reform Under a precautionary and liquidity line, the International Monetary Fund (IMF) approved a two-year arrangement for SDR 2.5 billion ($3.47 billion), about 280 per cent of Morocco’s quota with the IMF. It said that the new arrangement will provide insurance against external shocks as authorities continue on a reform agenda that the Fund said has so far successfully reduced fiscal and external vulnerabilities.

Authorities have stated that they intend to treat the arrangement as precautionary, as they have done under the previous two arrangements, and they do not intend to draw under the PLL unless Morocco experiences actual balance of payments needs. Morocco’s prior two arrangements were for about $621 billion (approved in 2012) and $5 billion (approved in 2014).

“Despite the difficult global and regional environments, Morocco has made significant strides in reducing fiscal and external vulnerabilities and addressing medium-term challenges,” Mitsuhiro Furusawa, IMF Deputy Managing Director and Acting Chair of the Board, said.

“Nevertheless, the economy faces significant downside risks. In particular, heightened geopolitical and security risks, a protracted period of slower growth in Morocco’s main trading partners, or more volatile global financial conditions could significantly affect the economy through higher oil prices, disruptions to export and tourism revenues and remittance and capital inflows, or higher borrowing costs,” he added.

Eighty-five per cent of Moroccan FDI goes into Africa, says AfDB President On his first visit to Morocco as President of the African Development Bank (AfDB), Akinwumi Adesina applauded the country’s focus on Africa. During meetings in Rabat on 20 July, Adesina repeatedly emphasised the close relationship between the AfDB and Morocco as the country was one of the AfDB’s founding members and its first client.

Morocco is the third biggest exporter in Africa, often “Morocco is one of AfDB’s out of the Casablanca port (CREDIT: SEAN PAVONE/ best performing portfolios on SHUTTERSTOCK). the continent,” Adesina said, adding that it had a disbursement rate of 52 per cent. He also noted that Morocco is the third largest exporter in Africa, while 85 per cent of its foreign direct investment (FDI) went into Africa. Over a day of meetings, Adesina and Moroccan authorities discussed how to work together on the Bank’s ‘High 5’ Priorities, namely the goals to power, feed, industrialise, and integrate Africa.

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Morocco wants back in the African Union— and SADR out

King Mohammed VI (pictured) formally requested that the country be readmitted to the African Union (CREDIT: FREDERIC LEGRAND - COMEO/SHUTTERSTOCK).

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orocco has requested to rejoin the African Union (AU) 32 years after formally leaving over the Union’s admission of Sahrawi Arab Democratic Republic (SADR), a political group that claims the Western Sahara state, an area administered by Morocco. However if Morocco returns, it still wants SADR out.

In a statement addressing the AU Summit in Kigali, Rwanda this July, King Mohammed VI said that, “Morocco, who left the AU, never left Africa. It only left an institution, in 1984, under particular circumstances.” He emphasised Morocco’s heavy investment into Africa, its participation in two and observer status in another two regional unions, and its participation across regional integration efforts—all while pointing out that SADR is still unrecognised by 34 African countries “The significant involvement of Moroccan operators and their strong presence in the field of banking, insurance, air transport, telecommunications and housing, show that the Kingdom is at present the first African investor in Africa,” he said. Further action on Morocco’s admission, or SADR’s exclusion, will require a majority vote by AU members.

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HAPPENINGS

In Côte d’Ivoire (pictured), where Muslims make up nearly 40 per cent of the population, its debut Sukuk issuance was a success (CREDIT: DANA WARD/SHUTTERSTOCK).

West Africa—the next Islamic banking hotspot?

Togo becomes the third WAEMU country to foray into Islamic finance with a debut Sukuk, the same month Côte d’Ivoire issues its second

I

n a bid to attract more capital from Islamic countries and institutions, two West African countries have issued sovereign Sukuk, Shari’ah-compliant bonds first introduced to the region through Senegal’s successful XOF 100 billion

12

($170 million) 2014 issuance. Now, Togo and Côte d’Ivoire aims to raise XOF 150 billion ($255 million) over a 10-year and seven-year period respectively.

Togo’s debut Sukuk launched on 20 July 2016 and wrapped on 10

August 2016. Structured as an Ijara, or lease-based Sukuk, it includes several Government properties as collateral, among them the offices of Togo Telecom and the Togo National Lottery.

The Sukuk was arranged by the Islamic Corporation for the

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Development of the Private Sector (ICD), a member of the Islamic Development Bank Group. Its lead auditor was Deloitte Togo and its lead managers included Africaine de Bourse, Atlantique Finances, BOA Capital Securities SA, Coris Bourse, EDC Investment Corporation and SGI Togo. The minimum initial deposit of CFA 10 billion ($17 million) and it has a 6.5 per cent yield.

The Sukuk will be received and held in Banque Islamique du Senegal, an established Shari’ah-compliant institution founded in 1982. Senegal was the first Sub Saharan Africa country to launch a sovereign Sukuk in June 2014.

Meanwhile Côte d’Ivoire, following the success of their five-year XOF 150 billion issuance at the end of 2015, launched its second Sukuk with ICD as the lead arranger. Subscription for the Sukuk, which aims to raise XOF 150 billion as well, closed on 31 August.

The Ijara Sukuk, or a Shari’ah-compliant leasing model, has a yield of 5.75 per cent and is backed by the property assets of the state including the building of the International Trade Centre of Abidjan (ICC) in the Plateau district, valued at XOF 98 billion, and administrative towers A and B which are the seat of several Ministries.

Côte d’Ivoire’s first issuance closed for subscription on 21 December 2015, with ICD and BNP Paribas acting as lead arrangers while Bibe Finance & Securities (BFS), Bici Exchange (BNP Paribas Group) and BNI Finance Ivory Coast acted as co-lead managers.

A press statement from the ICD said that the inaugural Sukuk was subscribed by regional and international institutional investors, including retail investors from the eight members West African Economic and Monetary Union (WAEMU).

The ICD has expressed interest in increasing its Africa involvement in

the past. Though 20 of its 52 member countries are Sub Saharan African, 22.5 per cent of projects went to that region in 2015, according to ICD’s annual report. This is a steady increase on past years, as the Corporation said in its report that it intended to move away from its “traditional emphasis on” the Middle East and North Africa towards “a more balanced geographical distribution.” It noted that in the last fiscal year, most of its lines of finances were concetrated in specific countries in Sub Saharan Africa. At the last ICD annual meeting in Maputo in June 2015, Khaled Al Aboodi, the CEO of ICD, said that, “Mozambique and Africa are key strategic directions for ICD.” August’s two Sukuk issuances mark the ICD’s growing involvement in West Africa since it first aided Senegal

in 2014, paving the way for other WAEMU countries. At the time of Côte d’Ivoire’s inaugural issuance, Khaled Mohammed Al Aboodi, the CEO of the ICD, commented, “The ICD will do its best to contribute in the transformation of the WAEMU capital market. ICD is committed to promote and increase substantially the volume of Islamic financing transactions toward the economies of the Union.”

The Togolese and Côte d’Ivorien governments have not yet released the regional breakdown of investors on their latest Sukuk, but Côte d’Ivoire’s December 2015 Sukuk show strong international interest. According to the ICD, 56 per cent of buyers were from West Africa, 38 per cent from the Middle East and six per cent from North Africa.

ICD grows globally ICD made stronger global presence a priority at its annual meeting last year in Maputo, Mozambique. Though it has already made significant inroads in Africa, Asia and Europe, the Corporation’s non-MENA projects and investments have surged in recent years. Besides arranging a series of Sukuk in West Africa and doling out increased lines of finance in Sub Saharan Africa, the Corporation signed an agreement with the China-Africa Development Fund in March 2016 to increase Africa-specific investment in 19 countries.

Moody’s assigned its first long-term issuer rating of Aa3/P-1 (stable outlook) to ICD in April 2015, citing its strong liquidity position and moderate capital adequacy, although Moody’s said that it is expected to deteriorate mildly over the next few years as the Corporation funds its expansion with new debt and increased paid-in capital.

Last year the Corporation established a Medium Term Notes (MTN) programme and issued a debut $300 million Sukuk to raise funds. However, Moody’s said these are offset by the historically high non-performing loan (NPL) rates in ICD’s financing portfolio.

Thus the ICD’s funding efforts continue to be key, and it has largely met with success—by June 2016, it reported that it had to date raised $850 million in long term funds or about 70 per cent of its $1.2 billion funding programme for the year. This was announced alongside the debut of its MTN programme and Sukuk listing on the London Stock Exchange on 6 June, sure to bring in more of the necessary capital.

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OPINION

Land reform—it is possible without blood shed South Africa is facing a crisis, writes CPI Financial's Managing Editor Georgina Enzer—the ANC promised ‘land for all’ when it first came into power in 1994, but has not moved forward with a sensible way to do this without compromising agricultural input to the economy, and voters are getting impatient

F

ollowing significant losses by the incumbent African National Congress (ANC) party in South Africa in many municipalities across the country in the August Municipal Elections, I came across a statistic that has been bandied about by right wing political groups, or in-power political parties losing their edge in Southern Africa, for years as proof that colonialism or apartheid is still alive and well. That figure is that 80 per cent of land in (insert African country of choice here) is owned by minority white farmers, while 20 per cent is owned by the majority black population. Initially this statistic seems to bear out the theory, but there is far more to this.

Let’s take South Africa as an example.

Yes, during apartheid whites owned land by government policy. Apartheid ended 23 years ago. In 23 years, the Government has not thought that the best way to address land inequality is to train black students on modern commercial farming methods, or to provide bursaries, special training and perhaps purchase farm land on either a willing buyer-willing seller basis or compulsory purchase at a reasonable price? Perhaps even a good plan would be to encourage white farmers to hand over a portion of their under-utilised land to black families and those white

14 page 14-15 Opinion_037.indd 14

farmers could help them to produce crops, with monetary assistance from the government to provide seed, fertiliser etc. The money would be necessary as most farmers are in debt to the bank every year until the crops come in.

A third option would be to buy commercial farms outright and make a government co-op, where all the small farmers grow produce for themselves and some for sale. The plots and production are managed by the government co-op, sold and the money given to the small farmers. This would go a long way to maintaining the right amount of crops and produce to supply the country with food and for export, thereby maintaining the economy. While I understand there are historical land claims on farming land, the farmers have spent generations improving the land, building on it and developing it, and to rip them of their livelihood would not only be detrimental to race relations in the country, but send thousands of farm workers into unemployment, halve crop production, and ultimately contribute to sending the country into an economic downward spiral reminiscent of South Africa’s nextdoor neighbour, whose land reclamation policy was an utter failure.

According to statistics, between 50 and 90 per cent of the farm land redistributed by the South African

Government under the land reform programme is failing to produce output.

Absent coherent reform and in the ensuing policy vacuum, violence is increasing with official reports of some 4,000 farmers murdered and allegations of many more that have been recorded as accidental deaths.

The problem lies with a Government that, at election time, resorts again and again to blaming historical apartheid and colonialism rather than taking proactive measures to resolve the issues. This is not a matter of racism any more. The issues are corruption and policy failure. Pandering to voters with poorly thought-out land redistribution policies are no substitute to investment in education and land.

So, to take my hypothesis further, let’s take the ZAR 248 million that South African President Jacob Zuma spent on ‘upgrades’ to his homestead, Nkandla, and use it instead to educate several impoverished black students of high school age in agricultural sciences, animal husbandry, and horticulture, for example.

The average cost of three year’s tuition at an agricultural college for one student including hostel accommodation is approximately ZAR 100,000 for a three year degree (an average over four agricultural colleges in various provinces

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of South Africa), this just covers hostel accommodation and courses, add another ZAR 48,000 a year for extra expenses, and the government is paying 84,000 a year on average per student to provide an education to further the economic viability of the country and provide its youth with an education that will not only benefit them, but will benefit future generations.

Now, let’s take those improvements made to Nkandla—ZAR 248 million.

That means the Government could

Georgina Enzer, Managing Editor, CPI Financial

have put 992 students through a three year degree at agricultural college just with the improvements made to the President’s residence. Those students could then intern with experienced farmers for a set number of years before being provided with Governmentowned land to farm, and then hire the next generation of graduated students coming out of their Governmentsponsored college degree. This creates a cycle of productivity and employment that can only benefit the country.

To take it one step further, the average price for a working farm producing maize, for example, is anywhere between a minimum of ZAR 15 million to over ZAR 300 million (according to South African property websites such as Property24.com and safarmtraders.co.za) depending on the region, size and production capability.

Even if the Government bought one small farm with all equipment and upgrades at a market price of ZAR 15 million, they would still be able to put 932 students through college and provide them with jobs as interns or farm managers when they left, if the Government offered incentives for farmers to take on such sponsored students as farm managers.

This programme could work successfully, but requires both the farmers and the South African Government to sit round a table and talk sensibly.

If proper education programmes and land reform initiatives had been done 20 years ago, there would be far less inequality now and a far larger portion of various southern African black populations would be providing strong economic value to the economy. Kenya, is a good example of a country that is facing the problem head on by providing students with bursaries to universities to study agriculture, to boost small scale farming, an essential part of any African country’s agriculture policy.With the current ratings downgrades of South Africa’s debt, a declining rand and a faltering economy, the Government should be looking to boost its revenue and formulate an all-inclusive way forward for land reformation that would include all parts of its population, and ultimately boost investor confidence, especially if, like the handover from Apartheid to Mandela, land reform was bloodless and peaceful.

So, you see, not every statistic is black and white.

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OPINION

South Africa’s small businesses hold the key to growth There are still areas that need improvement in South Africa’s business world, but now is the time to come together for inclusive growth, writes Lindiwe Zulu, Minister of Small Business Development, South Africa

South Africa’s economy needs readjusting to meet the challenges of the day, says Lindiwe Zulu.

16 page 16-17 Opinion_037.indd 16

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S

ince the end of apartheid in 1994, South Africa has made great strides towards building a more inclusive society and economy. We have much to be proud of.

South Africa is the most industrialised nation in Sub Saharan Africa and we have the highest standard of living and the biggest middle class. The country’s majority black population is more empowered now than ever before to go out and achieve their economic potential.

However, much more needs to be done. Rectifying the huge imbalance in the economy that existed in 1994 is not solved in one generation, but we need to up the pace of change.

There are fears that this year South Africa’s economy could slip back into recession and the risk of a downgrade by the international credit ratings agencies still exists. However, the biggest challenge of all facing South Africa is the desperate need to deliver true economic emancipation for all South Africans, especially the majority black population. Far too many people continue to be excluded from the economy. If we do not tackle this issue head on, the stability of the country will be at risk.

South Africa’s economy needs readjusting to meet the challenges of the day. The drop in the ANC’s share of the vote in August’s municipal elections is a clear sign that the electorate wants to see action to end a system of economic apartheid that continues to this day.

We hear that message loud and clear.

Only when all of our population have the opportunity to contribute to the economy in a meaningful way, can South Africa deliver sustainable longterm economic growth.

It is shocking to think that in a country of more than 50 million people, and in which only nine per cent of the population is white, only three per

cent of the shares on the Johannesburg Stock Exchange are owned by black investors. It is also shocking that according to Oxfam the two richest people in South Africa, both of them white, have the same wealth as 50 per cent of the population.

Furthermore, if you are black South African you are significantly more likely to be unemployed. Black unemployment in South Africa stands at around 40 per cent. For youth, who are the entrepreneurs and business and job creators of tomorrow, it is nearer 50 per cent. For white South Africans, it is only eight per cent.

I refuse to believe that black South Africans do not have entrepreneurial skills and inclinations, but they need help. They need educating, they need skills which employers can use, they need positive role models in their own communities and they need access to capital—like all entrepreneurs do.

Government can fulfil some of this social contract, but business and the banks need to come with us on that journey. It is not acceptable to turn a blind eye.

We need more apprenticeships. We need more capital made available for small businesses. We need big business to not just sell goods and services to the

Now is not the time for finger pointing, blame games and tit-for-tat exchanges of ‘it’s your fault’.

We are all in this together.

–L indiwe Zulu, South Africa Minister of Small Business Development

Giving young black entrepreneurs and small business owners the tools they need to become wealth generators and job creators is the key to delivering sustainable economic growth that benefits everyone.

Our growing population, and the number of young people in it, should be a demographic dividend for us—not a hindrance.

As with any vaguely developed economy though, government cannot act alone. It needs the support of the people who hold most of the country’s capital.

This is big business and the banking community. Government is the buffer between rich people and the poor.

Now is not the time for finger pointing, blame games and tit-for-tat exchanges of ‘it’s your fault’. We are all in this together.

masses and take its profits, but also to invest its experience and expertise back into communities.

Big business will reap significant rewards by working with us to bring about real change in the economy.

If more black South Africans are business owners, and if more black South Africans have jobs, there will be a bigger market available for all businesses to take advantage of.

Bringing about economic emancipation for all South Africans is a no brainer. It is a win-win situation.

So, my plea to the people and institutions in my country who hold the capital—please walk with us, let’s have a dialogue to bring about real change.

I, as Small Business Minister, cannot do this without you. Let’s help South Africa to fulfil its potential.

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THE MARKETS

DEALS INTELLIGENCE - FIRST HALF 2016

SUB-SAHARAN AFRICAN IB ANALYSIS INVESTMENT BANKING FEES – According to estimates from Thomson Reuters / Freeman Consulting, Sub-Saharan African investment banking fees reached US$173.9 million in first half of 2016, a 22% decline compared to the value recorded during the same period of last year. Fees from completed M&A transactions totalled US$54.8 million, a 43% decrease from the comparative period last year and the lowest first half period since 2014. Fees from debt capital markets underwriting declined 66% year-on-year and reached US$12.3 million.

Syndicated lending fees increased 49% from over a year ago to US$53.6 million. Equity capital markets underwriting fees dropped 5% to US$53.3 million, and accounted for 31% of the overall Sub-Saharan African investment banking fee pool. Sumitomo Mitsui Financial Group earned the most investment banking fees in Sub-Saharan Africa for the first half of 2016, with a total of US$22.1 million and captured 12.7% share of the total fee pool. Morgan Stanley topped the completed M&A and ECM fee rankings during first half of 2016, capturing 21.6% of the M&A fee share and 16.3% of the ECM fee share. JP Morgan holds first place for DCM underwriting fee rankings with 14.8% share. Sumitomo Mitsui Financial Group ranked first place for syndicated loans fees and captured 41.1% of the loans fee share.

Overall slump, a few spikes in H1 M&A

MERGERS & ACQUISITIONS - The value of announced M&A transactions with any Sub-Saharan African involvement reached US$12.8 billion for first half of 2016, a 27% decline in deal value compared to the first half of 2015. Outbound activity increased 44% compared to the first half of 2015 and reached US$4.1 billion in deal value. South Africa’s overseas acquisitions accounted for 82% of Sub-Saharan African outbound M&A activity, while acquisitions from Mauritius and Nigeria companies accounted for 12% and 5%, respectively. Inbound M&A reached US$5.4 billion, up 49% from over a year ago. Domestic and inter-Sub-Saharan African M&A totaled US$2.4 billion, down 63% from the comparative period last year. The Materials industry was the most active sector with US$4.0 billion worth of deals, and accounted for 31% of Sub-Saharan African involvement M&A. The largest deal with Sub-Saharan African involvement during the first half of 2016 was China Molybdenum Co Ltd’s pending acquisition of the entire share capital of Freeport-McMoRan DRC Holdings Ltd for US$2.77 billion.

Citi topped the first half 2016 Any Sub-Saharan African Involvement Announced M&A Financial Advisor League Table with US$4.2 billion in related deals and captured 32.7% market share.

Investment fees and activity decreased significantly EQUITY CAPITAL MARKETS - Sub-Saharan African equity and equity-related totaled US$by 4.0 billion during the first half of 2016, an 18% increase in value from the first half of compared to 2015, according to newissuance reports Thomson 2015. This is the highest first half period for the region’s ECM activity since 2007. Two initial public offerings raised US$44.7 million and accounted for 1% of the ECM activity in the region, while follow-on offerings and convertibles accounted for 55% and 43% market share, respectively.

Steinhoff Finance Holding GmbH raised US$1.2 billion through a convertible Reuters and Mergermarket issuance in April, the largest ECM offering in the region so far this year.

Morgan Stanley took the lead during the first half 2016 Sub-Saharan African ECM ranking with a 16% market share.

DEBT CAPITAL MARKETS - Sub-Saharan African debt issuance raised a total of US$6.9 billion in proceeds for first half of 2016, a 10% decline compared to the same period last year.

Ivory Coast was the most active issuer nation with US$4.1 billion in bond proceeds which accounted for 59% of market activity, followed by South Africa with 31% market share worth US$2.1 billion in proceeds. The South African government offered the largest bond issuance for the region this year with its US$1.2 billion 4.875% 10-year US-dollar Global bonds offering due on April 2026.

Bank of America Merrill Lynch took the top spot in the Sub-Saharan African bond ranking for first half of 2016 with US$1.0 billion related proceeds, capturing 15% of the market share.

SUBSAHARAN AFRICAN IB FEE VOLUMES ($Mil) SUB-SAHARAN AFRICAN IB FEE VOLUMES ($Mil) Sub-Saharan African IB Fees Volumes $600 YTD Fees

Rest of Year Fees

$500 261

Fees (US$ mil)

241 $400

141

248 209

179

$300

220

182

156 146 238

137

$200

273 224

77 112

$100

152

76

55 56

45

87

59

70

2001

2002

2003

155

131

129

149

163

153

2013

2014

174

115

90

$0 2000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2015

2016

Annual Sub-Saharan African IB Fees by Product $600

60% Syn Loans DCM

50%

M&A ECM as a % of Total IB Fees

Fees (US$ mil)

$400

40%

38%

37%

35% 32%

30%

31% 29%

27%

$300

19%

$200

30%

24%

23%

22%

28%

18%

19%

20%

15%

$100

% of Total Sub-Saharan African IB Fee Pool

51%

ECM

$500

10%

$0

0% 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

*Products Included: M&A (closed deals), ECM (IPO, Follow-On, Convertibles, Rights, Block Trades, ABB), DCM (ABS/MBS, High Grade and High Yield Bonds), Syndicated Loans

Source: Thomson Reuters/Freeman Consulting Source: Thomson Reuters/Freeman Consulting

18 page 18-20 Markets 037.indd 18

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S

ub Saharan African investment banking fees reached $173.9 million in first half of 2016, a 22 per cent decline compared to the value recorded during the same period of last year, according to Thomson Reuters’ H1 2016 analysis.

Its research also showed that fees from completed mergers and acquisition (M&A) transactions totalled $54.8 million, a 43 per cent decrease from the comparative period last year and the lowest first half period since 2014. Fees from debt capital markets underwriting also declined, by 66 per cent year-on-year (to total $12.3 million).

Sneha Shah, Managing Director, Africa, Thomson Reuters, said that other syndicated lending and equity capital markets (ECM) fared a bit better, comparatively.

“Syndicated lending fees increased 49 per cent from over a year ago to $53.6 million. Equity capital markets underwriting fees dropped five per cent to $53.3 million, and accounted for 31 per cent of the overall Sub Saharan African investment banking fee pool,” she said.

Shah highlighted the transaction led

by Sumitomo Mitsui Financial Group to earn $22.1 million, the largest investment banking fee of H1 2016 with a 12.7 per cent share of the total fee pool.

“Morgan Stanley topped the completed M&A and ECM fee rankings during first half of 2016, capturing 21.6 per cent of the M&A fee share and 16.3 per cent of the ECM fee share.

JP Morgan holds first place for DCM underwriting fee rankings with 14.8 per cent share. Sumitomo Mitsui Financial Group ranked first place for syndicated loans fees and captured 41.1 per cent of the loans fee share,” she added.

In Mergermarket’s H1 analysis, the research combined Sub Saharan Africa with the Middle East and North Africa (MENA) region, a classification that boosted Africa’s overall trend profile, as Mergermarket found than the combined Middle East and Africa region saw an upsurge in deal-making in the same period, with 174 deals valued at $26.8 billion translating to a 50.8 per cent increased on H1 2015’s numbers.

It also said that the size of deals has also grown, with the region attracting six deals over $1 billion during the first half of the year, compared to just three deals in H1 2015. However the impressive story told by Mergermarket’s numbers was largely due to its inclusion of South African Bidvest Group’s $5.8 billion demerger from its 100 per cent stake in Bid Corporation Limited. The deal is the largest for both Middle East and Africa during the time period, but was not included in Thomson Reuters’ data. Asked about the deal, a Thomson Reuters spokesperson said that the BidCorp’s IPO on the Johannesburg Stock Exchange was by way of introduction, and such listing are out of scope for Thomson Reuters.

Overall, Mergermarket said that South Africa generated 41 deals worth $7.9 billion during H1 2016, meaning the remaining 40 deals were significantly smaller than the BidCorp listing. However the overall value for a 222.7 per cent increase on H1 2015’s 89 deals, with BidCorp is included.

South Africa did dominate in overseas acquisitions with an 82 per cent share of overall activity, followed

by Mauritius and Nigerian companies at 12 per cent and five per cent respectively, according to Thomson Reuters. Inbound M&A reached $5.4 billion, up 49 per cent, while domestic and inter-Sub Saharan African M&A totalled $2.4 billion, down 63 per cent

from the comparative period last year.

However even on this front, activity fell—Thomson Reuters’ data indicated that the value of announced M&A transactions with any Sub Saharan African involvement reached $12.8 billion for first half of 2016, a 27 per cent decline in deal value compared to the first half of 2015. Outbound activity increased 44 per cent compared to the first half of 2015 and reached $4.1 billion in deal value.

By sector, the materials industry was the most active sector with $4 billion worth of deals, and accounted for 31 per cent of Sub Saharan African involvement M&A. The largest deal

by Thomson Reuters data (and thirdlargest by Mergermarket data) was China Molybdenum Co Ltd’s pending acquisition of the entire share capital of Freeport-McMoRan DRC Holdings Ltd for $2.77 billion, with Citi as the financial advisor.

This helped bump Citi to the top of Thomson Reuters’ financial advisor league table, with its total $4.2 billion in related deals and 32.7 per cent market share for the time period.

However Mergermarket put Standard Bank Group at the top of its table with $6.7 billion in related deals and 26.9 per cent market share, though again this was highly influenced by Standard Bank’s advisor position for Bidcorp.

Thomson Reuters said that Sub Saharan African equity and equityrelated issuance totalled $4 billion during the first half of 2016, an 18 per cent increase in value from the first half of 2015. This is the highest first half period for the region’s ECM activity since 2007. Two initial public offerings raised $44.7 million and accounted for one per cent of the ECM activity in the region, while follow-on offerings and convertibles accounted for 55 per cent and 43 per cent cont. overleaf

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THE MARKETS

DEALS INTELLIGENCE- FIRSTHALF cont. from page 19

SUB-SAHARAN AFRICAN IB ANA SUBSAHARAN AFRICAN IB FEE RANKINGS

UB-S AHARAN AFRICAN IB FEERANKINGS

Subsaharan African IBFee League Tables ($Mil) FIRST HALF 2016 Rk 1 2 3 4 5 6 7 8 9 10

Manage r Sumitomo Mitsui Finl Grp Inc Morgan Stanley Citi Rand Merchant Bank Gleacher & Co Inc Java Capital (Proprietary) Ltd BNP Paribas SA Bank of America Merrill Lynch Nedbank Capital HSBC Holdings PLC Total

Mkt Shr % 12.7% 11.8% 7.2% 7.2% 6.8% 5.9% 4.2% 4.2% 3.5% 2.9% 100.0%

Fees $ 22.09 $ 20.54 $ 12.51 $ 12.46 $ 11.83 $ 10.20 $ 7.32 $ 7.28 $ 6.08 $ 5.04 $ 173.94

Rk 1 2 3 4 5 6 7 8 9 10

FIRST HALF 2015 Manage r Rand Merchant Bank Investec HSBC Holdings PLC Citi Barclays Java Capital (Proprietary) Ltd Gleacher Shacklock LLP Deutsche Bank Standard Bank Group Ltd Morgan Stanley Total

Mkt Shr % 14.2% 7.5% 5.3% 5.1% 4.6% 4.0% 3.6% 3.5% 2.8% 2.3% 100.0%

$ $ $ $ $ $ $ $ $ $ $

Fees 31.79 16.86 11.80 11.41 10.20 8.85 8.13 7.94 6.20 5.08 223.83

Mkt Shr % 13.0% 11.1% 8.5% 8.2% 6.0% 4.2% 3.9% 3.9% 3.9% 3.7% 100.0%

$ $ $ $ $ $ $ $ $ $ $

Fees 12.48 10.66 8.13 7.84 5.74 4.00 3.74 3.74 3.74 3.58 95.80

Subsaharan African M&A Fee League Tables ($Mil) FIRST HALF 2016 Rk 1 1 1 4 5 6 7 8 8 8

Manage r Morgan Stanley Rand Merchant Bank Gleacher & Co Inc Citi Java Capital (Proprietary) Ltd Lazard UBS ACF Investment Bank FTI Consulting Inc BCMS Corporate Ltd Total

Mkt Shr % 21.6% 21.6% 21.6% 10.8% 9.4% 5.5% 3.7% 0.9% 0.9% 0.9% 100.0%

Fees $ 11.83 $ 11.83 $ 11.83 $ 5.93 $ 5.13 $ 3.00 2.00 $ $ 0.50 $ 0.50 $ 0.50 $ 54.76

Rk 1 2 3 4 5 6 7 7 7 10

FIRST HALF 2015 Manage r Rand Merchant Bank HSBC Holdings PLC Gleacher Shacklock LLP Investec Barclays Lazard Citi Comm erzbank AG Deutsche Bank Ernst & Young LLP Total

Source: Thomson Reuters/Freeman Consulting

Sub-Sa haran African ECM Fee League Tables ($Mil) FIRST HALF 2016

FIRST HALF 2015 Rk Manage r Mkt Shr % Fees Rk Manage r Mkt Shr % Fees 1 Morgan Stanley 16.3% $ 8.70 1 Rand Merchant Bank 26.4% $ 14.85 2 Bank of ASSArica SSArrill Lynch 11.9% $ 6.35 2 Investec 14.4% $ 8.11 3 Nedbank Capital 11.3% $ 6.01 3 Java Capital (Proprietary) Ltd 12.8% $ 7.20 billion related proceeds, market share, respectively.

Steinhoff 9.5%Côte$ d’Ivoire most 4 Java Capital (Proprietary) Ltd 5.06 was the 4 One Cactive apital 7.9% capturing $ 4.4415 5 BarHolding clays 7% $ 4with .63 $4.15 billion Citi in bond 5.8%share. $ 3.25 per cent of the market Finance GmbH raised $1.2 8.issuer nation 6 BNP Paribas SA 4% $ 4.46 6 UBS M e r g e r m a r k e t5.1% f o r e c$a s t 2t.8h8a t billion through a convertible issuance 8.proceeds which accounted for 59 per 4.46 6 Citi 8.4% $ 7 Morgan Stanley 3.8% $ 2.16 continued instability2.5% in the commodities in6April, theHoldings largestPLC ECM offering in 8.4% cent of$ market byCapital HSBC 4.46 activity, 8 followed Renaissance Group $ 1.41 sectors would bring2.1% down M&A the Africa cent market 9 region JP Moso rganfar this year. Morgan 3.South 2% $ 1with .72 31 per 9 Vetiva Capital Management Ltd $ activity 1.16 10 Standard $ 1.68 9 inStandard Bank Group Ltd energy, mining 2.1% $ 1.16 in the and utilities sector.

Stanley took Bank the Group leadLtd during the 3.2% share worth $2.1 billion proceeds.

Total 100.0% $ 53.32 Total 100.0% $ 56.34

Throughout Africa and MENA there first half 2016 Sub Saharan African The South African government offered were just 18 deals worth $4.4 billion ECM ranking with a 16 per cent the largest bond issuance for the region in H1, a 41 per cent drop compared to market share. this year with its $1.2 billion 4.875 per SubSaharan Sub-Sa haranAfrican African DCM DCM FeeFee League League TableTabl s ($Mil) es ($Mil) FIRfound ST HALthat F 201 6 IRSTyear.

HALF According 2015 to Mergermarket Thomson Reuters also Sub cent 10-year US-dollar Global bonds Flast Rk Manage r % Fees Rk 2026.

Manage r of Mkt Shr Fees longintelligence, “there are% several Saharan African debt issuance raised Mkt Shr offering due on April Bank 1 JP Morgan 14.8% $ 1.82 1 Rand Merchant Bank 10.8% $ 3.85 suffering mining companies as well as a total of $6.9 billion in proceeds for America Merrill Lynch took the top 2 Citi 13.8% $ 1.70 2 Citi 10.0% $ 3.57 non-core assets who may look to divest first half of 2016, a 10 per cent decline spot in the Sub Saharan African bond 3 Credit Agricole CIB 9.1% $ 1.11 3 Deutsche Bank 7.2% $ 2.58 4 RBSto the same period last year.

5.ranking 7% $ for first 0.70 half of 4 2016 Standard $ 2.33 asPLC a way to reduce 6.5% debt positions”. compared with Chartered $1 5 6 7 8 208 8

Standard Bank Group Ltd Bank of America Merrill Lynch Rand Merchant Bank Erste Group www.bankerafrica.com Standard Chartered PLC KBC Group NV Total

page 18-20 Markets 037.indd 20

5.3% 5.2% 5.2% 4.7% 4.7% 4.7% 100.0%

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0.65 0.64 0.63 0.58 0.58 0.58 12.26

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Barclays Standard Bank Group Ltd JP Morgan UniCredit Credit Agricole CIB Morgan Stanley Total

6.2% 5.3% 5.3% 4.5% 4.5% 4.1% 100.0%

$ $ $ $ $ $ $

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COVER STORY

‘Safe, sound and stable’ Bank of Ghana Governor Dr. Abdul-Nashiru Issahaku assumed office in April 2016 amongst global uncertainties, but he remains confident in the Ghanaian banking sector’s ability to grow and transform

S

ince assuming office earlier this year, what have been your main priorities as Governor?

It is an honour for me to assume the office of the Governor of Bank of Ghana and I take the responsibility that comes with the position very seriously.

The Bank’s mandate is to maintain price stability to provide enabling environment for investment, sustainable growth and development of the Ghanaian economy. Currently, on top of the agenda is regaining and sustaining macroeconomic stability which, by all standards, is challenging given the complexities

of managing the short-term fallouts of tight policies on growth.

The Bank of Ghana recently mandated that banks complete Instant Pay certification by end of 2016—how will this impact the banking sector and payments security? How have banks reacted to the requirements of Instant Pay? Yes it is true that Bank of Ghana has given the universal banks in the

country 31 December 2016 deadline to fully implement the Ghana Instant Pay (GIP) system. Statistics show that across the world, use of cheques and direct credits have slowed down as settlements for transaction are migrating to instant pay [methods]. Ghana cannot afford to be left out. Ghana Interbank Payment and Settlements Systems (GhIPSS) is responsible for settlements of payments in Ghana and has interbank infrastructure with security features that meet international best practices.

The banks have generally embraced the mandate and are working hard

(CREDIT: ANTON IVANOV/ SHUTTERSTOCK).

22

www.bankerafrica.com

page 22-23 Cover Story 037.indd 22

24/08/2016 15:37

inflation outlook which include the administrative price adjustments—the extent to which petroleum product prices, transport costs and utility and energy tariffs are adjusted upwards— in the next two quarters, and the potential second round effects from such adjustments on prices.

Do you foresee a move on interest rates for commercial banks in the near-to medium-term?

Dr. Abdul-Nashiru Issahaku

to meet their individual security requirements by the deadline, since it is known that most payment frauds come from the cheque environment.

Currently, nine out of the 31 banks have signed up to the system and I am confident that the others will sign up by the deadline.

What is outlook for inflation rates by end-2016? What is supporting and/or limiting inflation goals right now?

The outlook for inflation by end of 2016 is pretty good. The Bank’s internal forecasts indicate that the disinflation process will remain anchored on the tight monetary policy stance and fiscal consolidation, stability in the value of the FX [foreign exchange] market and expected slower food price increases with the onset of the harvest season.

There are, however, risks to the

Yes, the base rate of the banks determine their lending rates, so to ensure that he banks interest rates are market determined, a Base Rate Committee—comprising members from Ghana Association of Bankers [GAB], AGI and the central bank—is currently reviewing the existing base rate model.

This is expected to bring transparency and uniformity in pricing of credit and thus bring about increased competition and reduction in interest rates. Also the tight monetary policy stance, fiscal consolidation and the relative stability of the cedi will help bring inflation and inflation expectations down to the desired path. This will lead to a reduction in monetary policy rate to help induce lower lending rates.

In the wake of the Brexit reaction, do you think there will be any significant change to Ghana’s economic relation with the UK? Could, or did, Brexit impact Ghana and the Bank’s strategy at all?

Post-Brexit developments are still unfolding as we speak and may take a while before we can make a full assessment of its impact on the Ghanaian economy and therefore our relationship with the UK and the EU. It is also unclear whether and when the UK government will invoke Article 50 to begin negotiations on the postBrexit relationship with the EU. We will, therefore, continue to monitor

updates on the negotiations, when they happen, and take the appropriate steps to minimise their effects on the Ghanaian economy. In the time since the Brexit vote, however, we have seen the Ghana cedi strengthen against the sterling—this will make Ghana’s exports to the US more expensive and may affect the economy through the trade channel.

From your position, what do you feel are the biggest risks in the Ghanaian financial sector right now? How is the Bank of Ghana approaching these?

Ghana’s financial system continues to be safe, sound and stable. However, recent global financial developments and domestic macroeconomic instability, such as, falling commodity prices, a slowdown in economic activity and tightened financial conditions pose some risks to the financial system as they adversely affect profitability of banks. What we see as the biggest risk is the high non-performing assets that are eating into the solvency/capital of the banks. Though systemically small and unimportant, due to their numbers and visibility, Non-bank financial institutions such as microfinance institutions [MFIs] play a significant role in our desire to increase financial inclusion to the unbanked public, and therefore developments in that sector could constitute some risks to the financial sector as they may affect confidence in the financial, especially the banking, sector.

The disinflation drive by the Bank through the tight monetary policy stance will ensure the return of macroeconomic and financial stability which will mitigate the risks posed by instability. For the high NPLs, the Bank of Ghana in July 2015 commissioned an independent diagnostic study into the quality of the loan and investment cont. overleaf

www.bankerafrica.com

page 22-23 Cover Story 037.indd 23

23 24/08/2016 15:37

COVER STORY

cont. from page 23

Ghana has become integrated with global markets through trade ties and capital flows, says Governor Issahaku (pictured, Independence Square in Accra (CREDIT: FELIX LIPOV/SHUTTERSTOCK).

portfolios of banks to ensure they hold adequate provision for potential losses.

Banks have also been called upon to tighten their credit risk management practices and do proper due diligence before loans are given, step up their recovery activities and are required to hold capital commensurate with their credit risk levels. The central banking is considering increasing the prudential requirements of banks’ capitalisation to cushion them against shocks. In order to mitigate the risk posed by the non-bank financial institutions, the Bank has established a new department, Other Financial Institutions Supervision Department

24

(OFISD), to ensure our supervision of these institutions is strengthened.

We are also ramping up regulation to ensure that depositors’ funds are safe with these institutions.

2017 the energy situation will improve and economic activity will pick up.

In your opinion, what are the biggest growth opportunities in the Ghanaian economy at this time?

Ghana has become integrated with global markets through trade ties and capital flows. And it becomes almost impossible for us not to be affected the global economic conditions. As an inflationtargeting bank we consider a host of variables including global developments in making policy decision. This ensures our effort at delivering on our mandate is not ambushed by shocks that emanate from external sources.

The energy crises in the last couple of years have hampered growth, but the current improvements present the opportunity for growth. With the coming on stream of the TEN [an offshore oil project by Tullow Oil] in August 2016 and Sankofa oilfields in

As Governor, given the global economic conditions, how will you achieve your goals?

www.bankerafrica.com

page 22-23 Cover Story 037.indd 24

24/08/2016 15:37

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COUNTRY FOCUS GHANA

Growing smart—GT Bank Ghana goes digital Lekan Sanusi, Managing Director of GT Bank Ghana, discusses industry risk, Ghana’s economy and how GT Bank is growing

H

ow is GT Bank Ghana working to improve bank operations on the digital front?

There are a number of approaches, but the foundation is the fact that we remain an innovative institution and we prove that through the minds and brains of our stellar staff. An innovative institution will have to be catching up with the trends of the time. What is the trend now? It is the application of IT to the banking business.

Information technology is an enabler and the goal for us is to see what we can do, the products we can develop and the services we can develop for the convenience of our customers. It is an everyday affair and in the last couple of years we have raised our outreach from these IT initiatives in Ghanaian banking markets.

What, in your opinion, needs to be done in more general terms to encourage digital/mobile banking and a shift from cash?

In our own view, the first thing we need to do is develop education for the nonbanked public. Even people that are working with the bank, they still need education, and there I am talking about awareness, to let people know that some of these services actually have reach, and

26

our online banking is for the convenience and safety of these customers.

Another thing we have been doing, that we think others should be doing, is confidence-building. Confidence-building builds off of education. It means having more confidence to approach the digital technology—to use it, to enjoy, to grow to receive other services. We have people who are shy about approaching ATMs, or people who are think this is not friendly enough, or not safe, so we have to guide the user on what to do and what to expect.

Another thing that limits the migration of customers to ICT channels is the fear that their transactions are not safe. So there’s an element of security awareness. When you put them in the mode that what they’re doing is secure, it is safe, and will be conveniently delivered, this is how digital banking will grow.

We can also attempt to reduce negative experiences by consumers.

Because if a customer experiences an inconvenience using these services, that would mean he or she does not want to come back to a digital space.

Our use technology has also driven down costs considerably, just by bringing down use of cash. We want to bring the majority of our customers to the digital space to bring down the

cost of service delivery; it is a win-win situation for both the customers and the delivery of services.

Along the same lines, is GT Bank Ghana looking to grow into new areas through traditional branches or other methods?

What will this growth look like?

In banking it is important to be personto-person, to interact with your bank as a human. So it does not make a lot of sense for us to say that ‘we will not make branches, we will only do technology’. The tools of growth for us are depending on the customer and the marketplace.

There are some locations where we have a digital branch. But you have to keep in mind that there are still certain services that customers will still want to do with a person-to-person experience.

There are some other locations where we believe that digital services would be good, but still have that human element, so it would be a digital branch nonesense. Of course at a global level, we will continue to deploy products that we think are highly innovative and that we think could increase the number of customers. For instance, a large number of people, our customers, are carrying mobile phones, and we can use it to our advantage.

www.bankerafrica.com

page 26-27 Country Focus-Ghana.indd 26

24/08/2016 15:41

Wherever we are, wherever our customers find themselves at any point in time, they can have access to banking services using digital banking technology.

The SME segment remains our heart.

— Lekan Sanusi

What do you think are the biggest risks in the Ghanaian banking sector right now, and how is GT Bank Ghana navigating these?

The economy has gone through a change. The country itself is going through an IMF programme, which is meant to reposition the economy. That is one factor.

About four years ago, the cedi was about one naira and GHS 1.50 to a US dollar. Today we are looking at a cedi that has depreciate to GHS 3.90 to a US dollar. So you can see that over four years, the cedi has depreciated considerably. What that has done is that a number of companies are actually trying to find a foreign exchange channel.

For GT Bank, we have developed a strategy where we assured that our lending in the past was to very strong companies whose activities mean that their FX exposure is much in balance. Again, we have concentrated excessively on the SME end of the market. So I think we are able to manage our competition successfully.

Then, there in the cost of running a business. Because of all the factors I’ve mentioned, the cost of running this business in Ghana has moved up considerably—cost of utilities in particular.

What that has done, it has upped the responsibilities considerably for being a

manager in Ghana—to be able to manage the down flows and the cost of provisions. We are proud to say we’re one of the very few institutions with very low cost to income ratio. That is because we continuously generate ways of managing our costs.

What do you see as the biggest opportunities, or sectors for growth, in Ghana right now?

Lekan Sanusi

If we assume that the downward trend in the oil sector continues, the opportunities I see are simple. As a country we are still doing very well in cocoa, and we are still doing very well with gold. As an economy, there are still many opportunities in trade.

Costs of commodities is still a source of finance in Ghana because we’re still importing a high number of things even though we can do so much more locally. There’s commodities financing, i.e. importation of rice, importation of wheat, all this is a source of good business. Commerce still remains a very good area for bank lending.

Secondly, the private sector is booming. What is booming? IT, insurance, and the banking sector.

The private sector will continue to remain very important, and by extension, real estate lending.

We have a number of good development transactions in Ghana to advise on this lending area.

On top of that, the SME segment remains our heart.

As a bank what we have done is set up all the necessary groups that can assist the smaller and medium-sized enterprises. This includes connecting SME lending and SME customers, training to strengthen areas of banking and management.

www.bankerafrica.com

page 26-27 Country Focus-Ghana.indd 27

27 24/08/2016 15:41

COUNTRY FOCUS GHANA

An investment hotspot for Dubai Ghana’s non-oil trade with Dubai was $926 million in 2015, Hamad Buamim said.

T

he African continent is an important trade ally for us and we have been actively engaging with African countries to build and strengthen our trade and investment links over the years. In this vein, we opened our Ghana office in Accra in January 2015. It was our first in Western Africa and second in the African continent, after Addis Ababa in Ethiopia, and later followed by the opening of our office in Maputo, Mozambique. The inauguration of the Accra office fell in line with Dubai Chamber’s strategy of expanding internationally to promising markets in order to boost trade and promote bilateral relations. In addition, the directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, emphasise enhancing bilateral ties with Africa.

Ghana is an excellent base in which to launch Western Africa operations and from which to expand further into the region. Ghana is currently considered one of the best destinations for doing business in West Africa, according to the World Bank Group’s 2016 Ease of Doing Business report and among the top ten destinations for doing business in Sub Saharan Africa. The population of Ghana is estimated to be 26.4 million people,

28

Hamad Buamim, President & CEO, Dubai Chamber of Commerce and Industry, discusses why Ghana has the natural resources and growing industries to bring in business

and as one of Western Africa’s most populous countries, its market is rife with opportunities for business development.

We see strong potential for growth across a number of sectors with Ghana. Ghana is well-endowed with natural resources such as cocoa, and agriculture accounts for approximately one-quarter of GDP and employs more than half of the workforce, mainly small landholders. Dubai’s food imports are set to increase as population and tourism growth lead to larger consumption of produce and packaged foodstuffs. This presents opportunities for bilateral exchange between Ghana’s suppliers and Dubai importers.

There is also significant opportunity within the tourism, logistics, and healthcare sectors, while Ghana stands out as an investment hotspot for commercial real estate development.

Our Ghana office is responsible for organising roundtables and seminars, business delegations between Dubai and Ghana, and maintaining an international business network to welcome investors who wish to explore local opportunities. Our office facilitates business contracts, matches business opportunities with potential local partners, facilitates B2B meetings between businesses in Ghana and Dubai, and conducts market research.

His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, declared the intention to make Dubai the capital of the Islamic Economy, and Dubai Chamber is working towards that goal by co-hosting the Global Islamic Economy Summit and supporting ventures and businesses which fall within the Islamic economy.

There is much potential in Africa across many Islamic economy sectors, as financial institutions look for more ethical and resilient ways to operate and as sectors such as modest dress and family-friendly tourism continue to boom. Ghana has roughly four million Muslims, around 16 per cent of the population, and as many elements of Islamic economy are attractive to nonMuslims, the market for Halal products and services is full of potential.

Ghana’s non-oil trade with Dubai in 2015 was $926 million, and we are confident this figure will grow in the coming years. Studies and global indicators point towards a future that is very bright in Ghana and the wider Western African region, so we’re putting our trust in these markets that we think will drive the engine of growth, ensuring that Dubai Chamber is, once again, at the forefront of the investment community.

www.bankerafrica.com

page 29 Country Focus-Ghana.indd 28

24/08/2016 15:42

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COUNTRY FOCUS GHANA

An unpopular budget, a necessary turnaround Ghana’s efforts to turn around an unstainable debt balance continue steadily—but what does this mean for investors?

O

n 25 July, Ghana Minister of Finance Seth Terkper stood in front of the Parliament to present the case for GHS 1.89 billion ($478 million) in supplementary budget needs for the rest of the year.

Ghana has struggled in recent years to balance its need to pay down skyhigh debt levels with growth and infrastructure investment that would help the country keep up with its abovefour per cent average GDP growth. In 2001, Ghana joined the list of heavily indebted poor countries (HIPC) a grouping of 38 countries that are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank. Beginning in 2006, the country’s public debt level rose from a sustainable 26 per cent to peak levels of more than 150 per cent of GDP, finally starting to fall to about 72 per cent in-2015. Much of the recent progress can be attributed to an austerity programme with the IMF that has won few fans among the Ghanaian public.

“We are proud to note that, for the first time since the declaration of HIPC in 2001 we were able to first, slow down the rate of growth of debt accumulation between 2014 and 2015;

30

TIGHT POLICIES ARE SAPPING INCOME AND MONEY GROWTH

Ann% Ann% Chg Chg

BANK'S REAL DEPOSIT RATES NEED TO RISE TO ENCOURAGE SAVINGS AND DISCOURAGE CONSUMPTION

Ann% Ann% % Chg Chg GHANA:GHANA: DEPOSITS PRIVATEPRIVATE SECTORSECTOR DEPOSITS 20 IN REALINTERMS* REAL TERMS* 40 40

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% % GHANA:GHANA: BANKS'BANKS' TIME DEPOSIT TIME DEPOSIT INTEREST INTEREST RATE* RATE* 20 IN REALINTERMS** 20 REAL TERMS**

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BANKS'BANKS' SAVINGS INTEREST RATE RATE SAVINGS INTEREST IN REALINTERMS** REAL TERMS**

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*BASED ON 3-MONTH *BASED ON TIME 3-MONTH DEPOSITTIME RATE DEPOSIT RATE **DEFLATED BY **DEFLATED CPI

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BCA Research

www.bankerafrica.com

page 30-32 Country Focus-Ghana.indd 30

24/08/2016 15:48

and, second, now reverse course, with the debt-to-GDP ratio falling from 72 per cent of GDP at end-2015 to 63 per cent at end-May 2016. Certainly, this is not the trajectory that will take the nation back to HIPC, as some had predicted only recently,” Terkper said, acknowledging criticism that Ghana would be stuck in IMF debt.

“Though the debt level is declining, we are able to continue the rapid expansion of infrastructure through prudent project management. The currency has been fairly stable; and private sector confidence is bouncing back. All these point to a turnaround and very bright prospects,” he added.

Terkper said that provisional fiscal data up to end-December 2015 show that total revenue and grants were five per cent higher than the Budget targets, while the overrun in total expenditures, including arrears, narrowed to 2.1 per cent above target. These performances resulted in a cash budget deficit of 6.3 per cent of GDP, better than the Budget target of 7.3 per cent and 10.2 per cent in 2014.

“Indeed, at 0.2 per cent of GDP at the end of 2015, the primary budget balance—that shows our ability to service loans for development—was a surplus for the first time in over a decade,” Terkper said.

GDP also grew by 3.9 per cent at end-2015, better than the projected 3.5 per cent, despite the impact of low oil and commodities prices. However it is these external factors combined with Ghana’s lower oil output last year and its changing status, Terkper said, that ultimately have led to the need for extra funding for the rest of the year.

“We have come to the end of the HIPC era when, as a result of the debt relief we got from bilateral and multilateral sources, we were able to borrow significant amounts for our nation’s development,” he said, noting that Ghana’s move into middle-income

pressure on interest rates. This also makes more credit or loans available to the private sector to reduce the cost of doing business and contributing better to growth in national output,” Terkper said.

INVESTOR VIEWS

Minister Terkper, pictured, said that despite challenges, Ghana is on track towards leaving behind large debts (CREDIT: IMF/FLICKR).

country (MIC) status would slowly limit its access to favourable grants and concessional bargaining.

Revenue strategies presented by the Finance Minister included tax reform that closed loopholes and boosted compliance; the implementation of an external common tariff system with other ECOWAS countries that was signed into effect earlier this year; and a review of inefficient public expenditure, likely bloated employment by state offices.

“The practical meaning of the annual declining deficits is that Government is living within its means. Therefore, is borrowing less from the banks and capital markets and putting less

In a recent report on the country, BCA Research, a London-based investment research group, said that Ghana’s continued stringent fiscal and monetary policies, while necessary, will make it difficult for investors to get involved.

“While adjustments in the economy have begun, they still have a long way to go. What’s more, the adjustment process itself will be painful for both the economy and the stock market. As such, Ghanaian stocks will continue to fall for a while longer in US dollar terms,” BCA Research Senior Editor Rajeeb Pramanik wrote. The consultancy advised that investors should avoid Ghanaian equities for now, but should consider buying/overweighting its sovereign credit.

BCA also noted that the revenue strategies of focusing on tax reform and cutting down public expenditure have slowly but surely been working. Other factors, such as lower Government borrowing from banks and the Bank of Ghana (BOG) have helped lower inflation risks.

While Ghana is in a painful recovery period that makes current investment unappealing, BCA sees its future as bright.

“Despite its current woes, Ghana’s longer-term outlook [beyond two years] is less gloomy. Indeed, the country is considered one of the more stable and developed economies in the region,” it said. “Importantly, this was not due to the oil boom: Ghana’s oil sector was developed only in 2011.”

Ghana’s sovereign rating reflects large financing needs and high debt burden cont. overleaf

www.bankerafrica.com

page 30-32 Country Focus-Ghana.indd 31

31 24/08/2016 15:48

COUNTRY FOCUS GHANA

cont. from page 31

In the interim, Ghana’s high debt burden and large financing needs leave it in a tenuous place, especially with commodities prices down. Gold and cocoa will continue to play an important

part in the country’s economy as will oil and gas as production levels return, but fiscal consolidation will remain key.

“Ghana’s gross financing needs are expected to reach 20 per cent of

GDP over the forecast horizon and the country is facing tight domestic and external funding conditions,” said Elisa Parisi-Capone, Moody’s Vice President and Senior Analyst, as the ratings agency release its annual report. “Ghana’s credit profile is also exposed to lowerfor-longer commodity prices which weigh on the balance of payments and fiscal revenues.”

Moody’s assessed Ghana’s fiscal strength as “very low” against its B3 rating with a negative outlook. Overall, Moody’s projects that real GDP growth will accelerate to 5.1 per cent in 2016 and 6.5 per cent in 2017.

Highlights from the 2016 Budget

Seth Terkper, Minister of Finance, presented the supplementary budget in Parliament (pictured) this past July as he updated representatives on the country’s progress (CREDIT: WORLD BANK/FLICKR).

32

he Bank of Ghana (BOG) T has maintained the Monetary Policy Rate (MPR) at 26 per cent since November 2015.

The 91 day Treasury Bill rate declined from 25.2 per cent in December 2015 to 23.2 per cent in April 2016 while the 182-day rate rose from 24.4 per cent to 24.6 per cent over the same period.

The cedi “recovered much of its lost value” against the US dollar between January and April 2016 on account of tight monetary policy and improved foreign currency flows, Minister Terkper said.

Ghana’s deficit in the provisional trade balance from January to April 2016 was $972.78 million, compared to $542.71 million for the same period in 2015.

Tax revenues for the same period amounted to GHS 10.3 billion and were 6.4 per cent below the budget target of GHS 11.0 billion.

www.bankerafrica.com

page 30-32 Country Focus-Ghana.indd 32

24/08/2016 15:48

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CASE STUDY

Setting up shop The influx of multinationals into Africa continues, but the countries and cities that many consider their home base are slowly but surely shifting, according to recent research Luanda, Angola, is still the most expensive city in Africa (CREDIT; AYOTOGRAPHY/SHUTTERSTOCK).

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uite a few African cities are now amongst the most expensive in the world, according to the latest Mercer’s Cost of Living survey. Luanda and Johannesburg have been joined by N’Djamena, Lagos and Kinshasa as global factors shake up traditional urban centres.

The drop in oil prices appeared to impact Luanda, which no longer holds the dubious honour of being the most expensive city in the world for expatriates, as it slipped to spot number two (behind Hong Kong).

Nearby, the economic slowdown in South Africa also seems to have a knock-on effect—Johannesburg drops 14 places and Cape Town eight compared to the 2015 survey.

The bump puts Cape Town just one

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notch above the least expensive city, Windhoek in Namibia.

Kinshasa, the capital city of the Democratic Republic of Congo (DRC), meanwhile jumped significantly in the rankings, moving up thirteens spots to be sixth, the second-most expensive city in Africa. N’Djamena, the capital of Chad, also made a significant surge to grab the ninth position.

In its study, Mercer warned that few organisations seem prepared for the challenges that world events could inflict on their businesses, particularly the cost of expatriate packages. Currency fluctuations, cost inflation for goods and services, and instability of accommodation prices all contribute to rising costs for businesses looking to set roots in international cities.

“Despite technology advances and the rise of a globally connected workforce, deploying expatriate employees remains an increasingly important aspect of a competitive multinational company’s business strategy,” Ilya Bonic, Senior Partner and President of Mercer’s Talent, said. “However, with volatile markets and stunted economic growth in many parts of the world, a keen eye on cost efficiency is essential, including a focus on expatriate remuneration packages.

As organisations’ appetite to rapidly grow and scale globally continues, it is necessary to have accurate and transparent data to compensate fairly for all types of assignments, including short-term and local plus status.”

While the drop in expatriate cost of living could be seen as a benefit for South Africa’s cities, another recent

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report by Euromonitor, Doing Business Beyond South Africa, actually claims that multinationals’ interest in using the country as a home base is declining.

“In terms of location strategy, consumer-focused MNCs [multinational corporations] seeking to introduce their operations in the region have been historically motivated to use South Africa as a launch pad into the rest of the continent,” the report stated, citing South Africa’s global transport integration solid infrastructure and high retail development.

“Even though South African cities are some of the region’s most developed consumer markets, future growth potential will increase elsewhere. A very low proportion of formal retailing in countries such as Kenya, Nigeria and Cameroon is a short-term challenge;

however, it also indicates substantial investment and business opportunities in the medium- to long-term, as these countries continue to develop on the backdrop of rapid urbanisation and rising household incomes,” the Euromonitor report said. “In addition, South Africa is struggling to maintain its reputation globally as the best place for multinational companies to establish themselves in Subsaharan Africa. The lack of talent and relatively high cost of retention alongside political instability during the 2010s represents major shortcomings in the country’s business environment.”

Euromonitor cited Kenya’s capital of Nairobi, which is not currently on the Mercer ranking, but has potential to climb as multinationals set up shop in the country, supported by its welllinked regional infrastructure and the Government’s enthusiastic foreign direct investment campaign.

According to Euromonitor data, in 2015 Nairobi accounted for 11 per cent of national GDP while hosting 9.6 per cent of the national workforce. In the same year, labour productivity, or gross value added per employee, was 15 per cent higher in the city than the national average, while per capita disposable income was 25 per cent larger in Nairobi than in Kenya at large.

“The country’s sizeable consumer market potential cannot be ignored.

For example, in consumer foodservice, average spending per capita on fast food annually in Kenya was estimated at just under $4.77 in 2015. This per capita average is well behind countries such as the United States where a person spends $709.6 in fast food restaurants as of 2015. International chained fast food brands recognise the opportunities available to them in Kenya,” the Euromonitor report said.

It also found that top corporations are increasingly making location decisions based on long-term variables such as human capital—the report highlighted General Electric’s 2011 decision to move its regional headquarters from Johannesburg to Nairobi, reportedly not just for its geographic location, but “a sizeable pool of skilled potential employees”.

Overall, whichever city a multinational chooses to set up shop in, the general consensus is that even with promising growth in Africa, global conditions will have a significant impact on future earnings and stability.

“Exchange rates’ volatility amongst most African currencies and the concomitant impact thereof on inflation, some sooner and some later, directly contributes to the varying results when compared against the 2015 findings,” Carl Van Heerden Mercer’s Global Mobility Leader for Africa, said.

FAST FACTS uanda is the most expensive city in Africa and second-most expensive in L the world for expats.

Kinshasa (6th) and N’Djamena (9th) are now among the 10 most expensive cities in the world.

Cape Town (208th) and Windhoek (209th) are now the least expensive cities for expats in the world.

Currency fluctuations and commodities prices had a significant impact on cities’ rankings this year.

Source: Mercer Cost of Living, 2015

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35 24/08/2016 15:49

TRAILBLAZERS

Sustainable structures—and price tags Johan Mottelson, the architect behind Casas Melhoradas, discusses how a combination of tradition and sustainable technology has brought new homes to Maputo slums

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hat has rapid economic growth meant for many Africa countries?

Increased production, trade, growth of financial institutions and sometimes, infrastructure—but one of the most consistent factors in Africa’s rise has been staggering urbanisation.

Even in countries with wellestablished infrastructure and public resources, it can be hard to keep up.

So it’s no surprise that over the next 15 years the number of people living in slums, the fast growing side effects to cities, is estimated to grow from one to two billion worldwide. According to UN-Habitat, approximately 70 per cent of the urban population in Africa, or 320 million people, live in slums.

Casas Melhoradas, meaning ‘improved homes’, is looking to approach this problem—house by sustainable, affordable house. Born out of an architecture student’s study in Maputo, Mozambique, the applied research project has reinterpreted typical slum homes with sustainable elements.

“The project looks at a kind of universal problem, it leads to the ongoing organisation of the world, especially the developing countries in Africa,” Johan Mottelson, Founder and Project Manager of Casas Melhoradas, said. Mottelson and Project Senior Advisor Jørgen Eskemose Andersen

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The first Casas Melhoradas home, built in 2014, was modelled after traditional ‘casa de madeira e zinco’ homes.

have laid their foundations in Maputo, where Mottelson attended university for urban planning and architecture, and Anderson has spent decades working in urban planning.

Maputo, like many African cities, is facing a pressing problem, says Mottelson— urban development without predictive planning and appropriate infrastructure provision. What this means in real terms is urban sprawl without the utilities, safety measures and transportation to support citizens who often cannot provide these things for themselves.

“When areas of a city develop in low densities, [it results] in decreased access to infrastructure and decreased mobility, which has a lot of impact on health, access to education and jobs. It has a lot of negative consequences for the urban population in African cities,” Mottelson said.

“There are very few well-organised projects in affordable housing that deal specifically with urban development in African cities…We wanted to see if we could develop housing that medianincome families could afford, but

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that could also improve the quality of housing in the area,” he said.

A key element of the Casas Melhoradas houses is the emphasis on using locally the materials and surrounding environment to more economically and sustainably build a home. The first prototype, built in 2014, was an exploration of how best to achieve this. Using local, light-weight wood, recycled bottle caps for the façade and old tyres for the pre-fabricated point foundations, the project reimagined the traditional Mozambican ‘casa de madeira e zinco’, or typical wood and corrugated iron houses, in a sustainable an adaptable way.

“The first test house was really to see whether or not we’d be able to manage a construction project in Maputo and work with local builders to realise the project like this,” Mottelson said. Prior to the project, they had developed a structural system where the lightweight timber elements could be reproduced in local carpentry workshops, leading to a

more controlled construction project and less hassle on-site. These pre-fabricated elements became key to the cost and sustainability efforts, as material waste and actual on-site construction were both minimised.

With the success of the first prototype, Casas Melhoradas’ next house tackled the urban density issue with a three-story unit that included the same wood and corrugated iron elements with concrete flooring on ground and first floor modelled after a popular system in the Brazilian favelas. As has been important with each of the Casas Melhoradas projects, the house incorporated an open, outside social space consistent with cultural preferences.

“With a very small budget, we built a three-story housing prototype that went even better. We got some attention for that housing unit,” Mottelson said.

Coming off another success, in the third phase the team explored how to truly maximise sustainability by building extensions on existing houses.

The third prototype, a vertical additional to an old house that resulted in two separate homes, was completed in April 2016.

“It was a demonstration model of how the existing built environment could be transformed in order to meet the needs of high urban density; in order to use the space and infrastructure more economically,” Mottelson said.

“The next prototype we’ll construct next year. It will be a low-rise highdensity prototype inspired by Western low-house psychology, but adapted to the African context where the rental market is focused on the low- and medium-income population.”

Overall, each housing prototype is built at a cost of roughly $4,000 and rented at about $30 a month. Mottelson said that while purchasing the houses could be an option in the future, the first priority is the under-serviced affordable rental market, and Casas Melhoradas is planning a project next year that, with partners, will lead to 25 new houses.

The phase two home, built in 2015, addressed urban density by building upwards.

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SECTOR FOCUS SMF FINANCE

Reaching African champions Mark Napier, Director, FSD Africa, talks strategy and priorities for scaling up its regional presence and increasing access to financial services for all Africans

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inancial Sector Deepening (FSD) Africa, the United Kingdom’s GBP 30 millionfunded financial sector development programme for the sub Saharan region, takes a three-pronged approach to reaching its goals.

Through access to finance initiatives, the Department for International Development (DFID)-backed initiative seeks to build financial inclusion; with capital investments in various sectors it looks to promote economic growth and further investment; and with regional platforms it links providers of finance and technical assistance to encourage collaboration and regional integration.

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Though FSD Africa is still relatively young (created in 2012), it has already backed a number of major initiatives, including a $1.2 million returnable grant to Ghana-based Fidelity Bank, a $1.1 million investment into a technical assistance programme for the Capital Markets Authority of Kenya, and a $7.5 million investment in Frontclear to promote interbank lending.

Just a month after this interview, which took place at the African Financial Services Investment Conference (AFSIC) in London this May, FSD Africa announced a memorandum of understanding with the Uganda Capital Markets Authority to provide GBP 750,000 ($980,250) over three years to strengthen the authority’s institutional capacity and support its upcoming Capital Markets Development Master Plan, a 10-year programme that the Ugandan authorities hope to unveil soon.

Mark Napier, Director, at FSD Africa, sat down with Banker Africa’s Isla MacFarlane at AFSIC to discuss the role FSD Africa plays, and hopes to play, in deepening and extending the financial sector across Africa.

Strategically speaking, why is FSD Africa based in Kenya?

Kenya is the mobile and fintech hub of the moment. It also has a strong banking sector; it is the financial hub for that part of the world and has good communications. It’s a good place to be in for what we do.

How do growth strategies, in terms of African markets, differ across markets?

Africa is 54 different countries, each of those financial markets have very, very different characteristics, and some are much more developed than others. Kenya, for instance, is much more advanced, even than Uganda

and Tanzania—private credit to GDP in Kenya is about 35 per cent, while in Uganda and Tanzania it is about 15 per cent. So even amongst neighbouring countries there are very profound differences.

And then obviously Nigeria and South Africa are very big economies, and between them you have big, big differences as well. So it is important to understand what is going on in these particular markets in order to address the needs of each.

Could you elaborate on your goal to be a regional platform?

The idea of a regional platform is to look at the fact that there is a whole range of financial sector development interventions that take place across the continent, and it makes no sense at all for countries or donors to do those things independently. So we can help to create synergies and efficiencies by intervening at a multi-country level for some of those interventions, for example in capacity building.

What are your key goals for the rest of this year?

For us it’s very much about building out our regional presence, to include a West African and Southern Africa hub and delivering on some investments in our pipeline. We are also thinking seriously about what we can do in fragile and conflict affected states.

But we are still building an institution, so we’ve got to hire more people and get the whole team lined up behind the vision for what we want to do.

What would you say your biggest challenges are in achieving that?

Just finding the people who are technically skilled enough to do the work we do, which implies getting

people to come in from the private sector with enough proper financial sector experience, but who really share our belief that financial markets can play a critical role in building prosperity and reducing poverty. There are lots of expensive bankers who would like to come and work with us, for a pretty expensive salary, but that is not the kind of person we want. We want the kind of people who really do buy the developmental story. And there are people like that! Just not as many as you might hope.

Do you have a target market?

Our target market is really African champions, in the private sector but also policymakers, who believe that their ideas will have a transformative impact on the way that financial markets operate. People who are looking for investment capital or technical support because they passionately believe that their approach to doing things is going to change the way financial markets operate and therefore become more inclusive and useful.

What would you say to an investor in Africa—because there has been a lot of talk at the conference about how it’s been over-valued, how you have to be here a long time, cannot expect a short-term return, etc.—how would you sell the investment story of Africa?

I think we’ve got a few turbulent years ahead, but long-term I think the demographics are quite strong.

Large populations create all sorts of other problems–for the environment, for infrastructure and so on. But for finance, there are a lot more people, or will be, that are going to need more bank accounts, credit and so on. So the long-term prospects for financial services in Africa are very good.

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39 24/08/2016 15:55

TECHNOLOGY

Rise of the machines Global research groups are predicting a surge in artificial intelligence technology that could change consumer lending and financing practices the world over

Machine learning, a form of artificial intelligence that harnesses big data, is set to grow exponentially in the next few years (CREDIT: CHRISTIAN LAGERAK/SHUTTERSTOCK).

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onsultancy group Juniper Research has forecasted that fintech platform revenues for unsecured consumer loans issued using machine learning technology are set to see a jump of 960 per cent during the period 2016-2021, rising to $17 billion globally in 2021.

The rise is driven by advances in analytics and accessible computing power.

Specifically artificial intelligence (AI) is expected to advance rapidly, according to Juniper’s new report, AI & Machine Learning: Fintech Dynamics, Disruption & Future Opportunities 2016-2021.

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Machine learning, a subset of AI, has grown ‘tremendously’ since 2011 due to significant increase in research and development into the sector and venture capital interest, Juniper said. While for many the term ‘AI’ immediately conjures science fiction fantasies of robots, its fintech definition is far more simple and wide-reaching. Juniper Research defines it as a computer programme that uses a combination of digital building blocks, such as mathematics, algorithms and data to solve complex problems normally performed by humans.

These complex problems have grown with the advent of big data and the opportunities it presents for companies to better know, and serve, their customers. ZestFinance, one of the fintech startups that Juniper highlighted in its report, works in precisely this area, utilising data to make the consumer lending market more transparent.

As the US-based company—founded by a former Google CIO—describes itself on its website, “This new technology is able to consume vast amounts of data to more accurately identify good borrowers—enabling higher repayment

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rates for lenders and lower-cost credit for consumers.” ZestFinance’s offer is attractive—the company has raised $100 million in funding, led by American and Chinese investors.

Another fintech start-up, Kabbage, focuses on e-lending for small businesses and attracted $135 million from big investors such as Santander, ING and Scotiabank last year. Juniper pointed out that both companies cite AI as part of their core strategy.

Juniper said that alongside big data, the increased availability of cloud computing and high bandwidth internet services have made harnessing data

more feasible for companies, leading to an overall resurgence in AI interest.

“Until recently, machine learning was too expensive and computationally time-intensive to break into the mainstream. Meanwhile access to extensive data sets for algorithm training were limited,” Steffen Sorrell, Senior Analyst at Juniper and the author of the research, said.

“Presently, the ability to use GPU [graphics processing unit] hardware for processing massive and highly available data sets, along with unlimited affordable computing power in the form of distributed architecture has opened the market to a swathe of disruptive new players.”

“Where big data analytics offered retrospective business intelligence, machine learning offers predictive and even prescriptive capabilities.” Sorrell said. “Data is key—and industries able to draw expertise from data scientists will be the first to capitalise on the AI opportunity.”

In these contexts, AI is largely used for risk assessment—particularly when it comes to crunching numbers efficiently for loan approvals in previously limited markets.

“This widens the addressable market for financial institutions considerably over traditional FICO credit scoring, where lack of credit history may mean loan rejection despite a real low risk for the lender,” Sorrell said.

AI is still a nascent industry in Africa, but fintech as an industry is growing significantly and helping to usher in a new AI era, according to new data from research and consulting group Frost & Sullivan. The company said that Africa is following in the footsteps of Australia, where Frost & Sullivan forecasts that fintech companies will take $10 billion in revenue away from big Australian banks and contribute $3 billion of new revenue from 2015 to 2020.

“The African continent has embraced mobile communications at a faster rate than other parts of the world, whilst also pioneering mobile technologies such as M-Pesa, through which almost 50 per cent of payments are being made by Kenyans,” Wayne Houghton, Director of Growth Implementation Solutions for Africa at Frost & Sullivan, said.

“Africa’s under-developed banking infrastructure means that the fintech wave will more likely be an enabler of financial inclusion than the typical disruption seen in more developed markets. With at least 60 per cent of the adult population on the continent still without a bank account, Africa offers significant opportunity for the industry,” he added.

Globally, Frost & Sullivan said that an increase in the use of algorithmbased banking and ‘robo-advice’, or AI, is set to significantly affect the financial planning market.

AI systems are already being used in social media networks and website such as MyBucks, a start-up to assess the credit-worthiness of customers in the African market.

“MyBucks and TagPay have already joined the growing list of international companies to have taken an interest in Africa’s fintech industry, competing with local startups such as Kenya Fintech, SnapScan and Rainfin,” Houghton said. “Existing South African financial services providers are beginning to appreciate the threat and the opportunity fintechs pose. Some have embraced open innovation as a way to explore these types of opportunities and understand how to make them relevant for the local market. In South Africa, we have already seen the emergence of Standard Bank’s WeChat Wallet. And predictions globally suggest that Apple Pay and Android Pay will be the next revolution in banking, with a number of bets being placed on the emergence of a ‘Facebook bank’.”

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CASE STUDY

Improving operational efficiency Greg Rung, Partner at Oliver Wyman’s Financial Services practise in the MEA region, discusses how to boost bank productivity by 25 per cent while operating at a 35 per cent cost-income ratio

A bank approached Oliver Wyman with two goals—to increase flexibility in service delivery and to build a scalable operational unit (CREDIT: STOKKETE/SHUTTERSTOCK).

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ith today’s challenging market conditions, financial institutions are focusing intently on improving operational efficiency, streamlining core processes and remaining competitive.

This was a challenge faced by a regional mid-sized bank, which was experiencing robust revenue growth,

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but was understandably anxious to exert a measure of control over its rising operational costs. The bank’s growth strategy, which included an expansion of its branch network and a comprehensive overhaul of its retail business, had led to a compound annual growth-rate (CAGR) of 13 per cent in its top line over the previous five years.

However, while somewhat encouraging,

that growth in revenue had not been accompanied by a significant increase in operational productivity.

The bank’s cost-income ratio was appreciably low, sitting at less than 35 per cent, which meant that this was already a considerably lean organisation, but operating costs per customer were significantly higher than the market average.

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In the midst of these challenges, the bank consulted with Oliver Wyman, asking the firm to implement a complete end-to-end review of backoffice operational efficiency. There were two goals set for the engagement.

First, to increase flexibility in service delivery to both internal and external customers and, secondly, to build a scalable operational unit.

BREAKING DOWN THE PROBLEM

This had, over time, led to a slower-thanexpected decrease in the organisation’s cost-income ratio, even though it already stood at a healthy level of 34 per cent.

To add to the bank’s concerns, an anticipated worsening of economic conditions was expected to dampen prospects for future revenue growth and perhaps necessitate sweeping changes to the client’s business mix.

In assessing how to initiate measures that would lead to a demonstrable enhancement of the bank’s operational efficiency, Oliver Wyman broke down the overall concept of efficient operations into sub-components. The project team realised that any explicit improvements meant processing a greater volume of transactions with fewer resources on hand. This could be achieved in one of two ways. The first was an increase in productivity– essentially, faster processing by existing resources. The second was through a decrease in demand for non-businessrelated transactions.

Other subtler ways to increase productivity included introducing methods to ensure resources were exerting less effort per transaction, leading in turn to faster processing.

In addition, an optimisation of the extant organisational structure could be undertaken, in order to remove redundant management layers. This, coupled with the establishment of proper capacity-planning tools, would inevitably achieve higher resourceutilisation levels.

Oliver Wyman defined typical efficiency-improvement levers for the bank that would serve as a guide during the engagement process. For example, process automation and simplification for process efficiency; performance culture changes and outsourcing for performance management; and

service-level agreement simplification and product rationalisation for demand management.

THE ENGAGEMENT PROCESS Oliver Wyman applied a three-pronged approach when devising a solution to the bank’s challenges.

The first step was an objective, frontto-back, as-is assessment of the client’s operational procedures, conducted through Oliver Wyman’s proprietary front-to-back complexity framework and use of detailed local and regional industry benchmarks. Formal benchmarking formed an important part of this step because it is, and has always been, a basic yet vital tool when assessing efficiency. For example, it is relatively straightforward to compare the straight-through-processing (STP)

Other subtler ways to increase productivity included introducing methods to ensure resources were exerting less effort per transaction, leading in turn to faster processing. � Greg Rung

rate of a bank’s processes with bestpractise standards, as well as the span of control, the number of management layers, the usage of outsourcing and centralisation of operations.

However, the accurate assessment of other efficiency levers required more creativity. For example, to assess capacity planning and resource availability by units, Oliver Wyman analysed the working hours of the bank’s employees, and determined that some units had redundant capacity because a substantial number cont. overleaf

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CASE STUDY

cont. from page 43

of employees in those sections were working fewer than eight hours a day.

When the assessment step was complete, Oliver Wyman was able to deliver an overview of the operational efficiency for each model component, including business model; operations and processes; information technology; and governance and organisation. Along with these overviews was delivered an initial list of remedial initiatives that would facilitate action planning for the bank’s management team.

INITIATIVES AND PRIORITISATION The second engagement phase involved the detailing of specific initiatives and a prioritisation of tasks. This was accomplished through a series of stakeholders workshops in which the bank collaboratively identified a top10 list of schemes that would begin to close the gaps that existed between the current and target operating models.

Deliverables from the second step included this list, along with projected quantifications for the implementation of each initiative, covering costs, quality, scalability, and risk reduction.

Prioritisation of each proposal was based upon impact and ease of implementation. Stakeholders also submitted a list of quick-win proposals.

In the third step, Oliver Wyman worked with the client’s senior management, in one-to-one meetings and workshops, to build a business case and roadmap for overall operational efficiency, which included three-year targets with reference to 27 separate KPIs. Each KPI was carefully assessed so as to choose only those that were feasible, measurable and subject to automation. The roadmap showed detailed activities, timelines, owners, risks and dependencies.

Following the implementation of the proposals, Oliver Wyman achieved a 25 per cent productivity improvement,

44 page 42-44 Case Study037.indd 44

Greg Rung, Partner at Oliver Wyman’s Financial Services practise in the MEA region.

which subsequently led to a cost-income ratio of about 30 per cent for the bank.

Taken in combination, the initiatives led to an operational efficiency increase of 15 per cent to 25 per cent in year one and 25 per cent realised in year two.

This would, in turn, be translated into substantial annual savings for the bank of up to 20 per cent of existing budget in monetary terms.

Required investments from the client were limited to adding a management information system (MIS) that would enact workflow for the purposes of KPI tracking; an e-documents management system; and additional time from internal management resources.

Further operational expenses took the form of extra resources for business

process management and optimisation; capacity pl anning an d mo d e l maintenance; and MIS development.

EXPERIENCE AT OTHER CLIENTS The success experienced during the engagement with the bank has led Oliver Wyman to offer the proposed initiatives to a wider client base. The operational efficiency solutions can be offered in a variety of formats. To make the experience more tangible, relevant and educational, the suggestions are tailored to the unique circumstances of each organisation and are set up to use company-specific metrics, including cost-to-income ratio and back office to total operating costs.

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INVESTMENTS

Africa leads FDI as world growth slows In an extensive survey on the region, EY finds that international investors and African economies are ‘staying the course’

A

ccording to the 2016 edition of EY’s annual Africa attractiveness report, Staying the course, despite a relative slow down, Sub Saharan Africa remains one of the fastest growing regions in the world; the report found that foreign direct investment (FDI) project numbers increased by seven per cent in 2015 alone.

Though EY said that the capital value of projects was down year-onyear—from $88.5 billion in 2014 to $71.3 billion in 2015—this was still higher than the 2010–2014 average of $68 billion. Similarly, jobs created were down year-on-year, but, again ahead of the average for 2010–2014.

“Over the past year, global markets have experienced unprecedented volatility. We’ve witnessed the collapse of commodity prices and a number of currencies across Africa, and with reference to the two largest markets, starting with South Africa, we saw GDP growth decline sharply to below one per cent and the country averting a credit ratings downgrade; in Nigeria, the slowdown in that economy was

46

impacted further by the decline in the oil price and currency devaluation pressure,” Ajen Sita, Africa Chief Executive Officer at EY, said.

“The reality is that economic growth across the region is likely to remain slower in coming years than it has been over the past 10 to 15 years, and the main reasons for a relative slowdown are not unique to Africa. In fact, Africa was one of the only two regions in the world in which there was growth in FDI project levels over the past year,” Sita said.

The US led investment into the continent in 2015, but the UAE and India crept up the FDI leaders list and the UK and France also showed significant interest throughout the year.

G R O W T H F O R E A S T, RESTRAINT IN THE NORTH According to the report, East Africa recorded the highest share of FDI, accounting for 26.3 per cent of total projects across African regions. However Southern Africa stayed at the top of the investment lists in terms of value, though projects were down 11.6 per cent from 2014 levels. FDI in West Africa rebounded

to 16.2 per cent, and EY found that for the first time, capital investment into West Africa outpaced the Southern region.

Compared to the other regions, North Africa was relatively restrained, with only 8.5 per cent year-on-year growth in FDI projects. While the growth is a steady improvement from political instability in recent years and, as EY pointed out, is in line with its 2014 prediction of a rebound, it is still outpaced by Sub Saharan regions.

The growth is primarily supported by international car manufacturers rolling into Morocco and Gulf countries’ continued interest in Egypt.

“In a context of heightened concerns about economic and political risk across the continent, FDI flows remain robust, and in line with levels we have seen over the past five years,” Michael Lalor, EY’s Africa Business Centre Leader, said. “A key factor here is the structural shift in FDI—from a high concentration of source countries and destination markets and sectors, to a far more diverse FDI landscape. As a result, risks and opportunities are being spread much wider, and there is no

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24/08/2016 16:02

FDI gap, with Kenya a big gainer Southern Africa’s lead narrows; East Africa and West Africa gain prominence in terms FDI projects and value, respectively. % share (2015) 21.5% 28.5% 29.8%

North Africa

% share (2015)

% share (2015)

26.2%

22.3% 29.7% 21.5%

19.5% West Africa % share (2015) 2.3% 2.0%

25.8%

East Africa Central Africa

3.6%

% share (2015) FDI projects

27.6% 20.3%

FDI value Jobs created

Southern Africa

19.2%

Source: fDi Markets, EY analysisEY analysis.

Source: fDi Markets,

EY’s Africa attractiveness program, Staying the course.

for many companies over the past longer an overdependence on a limited few years has been on entering new group of investors or sectors to drive 14 EY’s Africa Attractiveness Program 2016 Staying the course capturing market share and markets, FDI performance.” driving revenue growth,” Sita said.

Investors’ sectors of interest have also “A combination of factors—including shifted according to EY’s survey, with tightening economic conditions, a marked transition from extractive increasingly well-informed consumers to consumer-facing industries such as and citizens, intensifying competition, a retail, financial services, technology heightened sense of global geopolitical and telecommunications. Altogether, uncertainty, and shifting priorities from service industries accounted for 44.7 global or regional HQ—is now driving a per cent of FDI projects in 2015. change in focus toward striking a greater “Given the growth potential in and balance between growth, profitability relative underdevelopment of many and risk management.”

African markets, the primary focus

frica is one of the only two A regions in the world achieving growth in FDI project numbers over 2015.

FDI in Africa rose by seven per cent rise in 2015.

East Africa is the biggest gainer, while other key economies recover ground.

US remains the leading investor into Africa.

Source: EY, Staying the course

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47 24/08/2016 16:02

OUTLOOK

The Nairobi consensus—to keep at globalisation When UN representatives and member states convened in Nairobi in July, the message was clear—policy action needs to happen to keep global trade a reality

D

uring the United Nations Conference on Trade and Development (UNCTAD) 14 that began on 17 July, UN Secretary-General Ban Ki-moon warned that the recent trade slowdown worldwide is threatening global development and intensifying divides between countries.

The conference was opened by Kenya’s President Uhuru Kenyatta in the presence of Ban and UNCTAD Secretary-General Mukhisa Kituyi. The Vice-President of Uganda, Edward Kiwanuka Ssekandi, represented Yoweri Museveni, Uganda’s President, detained at an African Union summit taking place in Kigali.

“There are worrying signs that people around the world are increasingly unhappy with the state of the global economy,” said Ban, who noted trends of high inequality, stagnant incomes, and limited new job creation, particularly for the burgeoning youth population.

“The global trade slowdown and a lack of productive investment have sharpened the deep divides between those who have benefited from globalisation, and those who continue to feel left behind,” he said. “And rather than working to change the economic model for the better, many actual and would-be leaders are instead embracing protectionism and even xenophobia.”

Ban promised UN support for UNCTAD policies and implementation, but overall there was a sense of pressure

48 page 48 Outlook037.indd 48

Journalists and observers gather at a joint press conference by UN Secretary-General Ban Ki-moon and Kenya President Uhuru Kenyatta on UNCTAD 14 (CREDIT: UN PHOTO/RICK BAJORNAS/FLICKR).

to turn around recent trends, especially as the global ‘north’ has grown sceptical about globalisation.

“Confidence that globalisation can deliver is receding. It is critical we now turn from making promises to keeping promises,” Dr. Kituyi said.

President Kenyatta said that making decisions on development aspirations were “meaningless without action”.

“Constructive engagement, transparency and inclusiveness—and willingness to compromise—will be key for success. I remain confident that the Conference will deliver successful outcomes for the global economy and for our sustainable development,” Kenyatta said.

The conference wrapped with the 194 member states agreeing on a fouryear framework, dubbed the ‘Nairobi consensus’ largely focused on reaching the UN Sustainable Development Agenda. Prepared under the leadership of the Kenyan Government, the political declaration, known by its Swahili

translation, the Azimio, represents a broad expression of the social and economic state of the world.

Amina Mohamed, Kenya’s Cabinet Secretary for Foreign Affairs and the President of the UNCTAD 14 conference, told the negotiators, “It’s a good day for Kenya, a good day for UNCTAD, and a big win for multilateralism.”

The Conference saw concrete progress including the launch of a new e-trade initiative, the first UN statistical report on the Sustainable Development Goals (SDG) indicators, the launch of a multi-donor trust fund on trade and productive capacity, and the commitment of more than 90 countries for a roadmap on fisheries subsidies.

“With [the Azimio] document, we can get on with the business of cutting edge analysis, building political consensus, and providing the necessary technical assistance that will make globalisation and trade work for billions of people in the global south,” Dr. Kituyi said.

www.bankerafrica.com

24/08/2016 16:04

OUTLOOK

Few bright spots for MENA growth this year Oil prices and global factors have bumped GCC growth off track and in some ways, shaken North Africa’s prospects for 2016

O

verall sovereign creditworthiness in the Middle East and North Africa (MENA) region has continued to deteriorate in 2016, according to a half-year assessment

by Standard & Poor’s (S&P), while the ratings outlook in general sees a rocky future for Egypt and constrained but steady growth for Morocco.

“We rate eight MENA sovereigns in the ‘BBB’ rating category or above,” S&P Global Ratings sovereign credit analyst Benjamin Young said. “The average MENA sovereign rating is now close to ‘BBB’, one notch lower than in mid-2015. When weighted by GDP, the average moves closer to ‘BBB+’.” These include Egypt and Morocco, the two North African countries that S&P rates.

S&P said that the average, weighted by nominal GDP, has fallen sharply over the past year mainly due to Saudi Arabia, the region’s largest economy, but that does not mean other countries have not been negatively affected. Egypt’s outlook was revised to negative in May 2016 due to fiscal and external vulnerabilities and continued sociopolitical tensions.

Though Egypt managed 4.2 per cent GDP growth in 2015, S&P said that it only expected three per cent this year.

One of the key factors in Egypt’s favour is continued support from Gulf Cooperation Council (GCC) countries, but these inflows could waver as the Gulf

Between low oil prices and fragile fiscal positions, Egypt and other MENA neighbours could experience slow growth this year (CREDIT: JRCASAS/SHUTTERSTOCK).

countries manage their own economic struggles in the face of low oil prices.

Added to Egypt’s weak foreign exchange profile and low tourism rates this year, and the overall outlook is quite negative.

As Moody’s Investor Services noted in July, the country already has a weak balance of payments profile that could only be exacerbated by these struggles.

Overall in the GCC and by extension Egypt, S&P said that international market volatility—reflecting weaker demand from China, uncertainty stemming from Brexit, and the potential for a change in stance from key monetary authorities on global liquidity—could also deter issuers from Eurobond placements for some time, further dampening growth.

Therefore Morocco’s BBB-/A-3 rating with a stable outlook serves as a bit of a bright spot. Last assessed by S&P in April (and Moody’s in March) and reviewed by S&P in the half-year report,

Morocco is supported by political and social stability in contrast with Egypt.

“In our view, Morocco has demonstrated its resilience at a time of widespread social and political upheaval in the regional context of the Arab Spring,” S&P said in a statement.

This, combined with low Government debt burden, is likely why the outlook is stable despite a harsh agricultural year that is forecast to bump GDP growth down from a four per cent average over 2011-2015 to just 1.8 per cent this year.

Both ratings agencies appear confident that the Moroccan Government can handle the challenges ahead relatively well, and that growth will bounce back to its four per cent range with next year’s agricultural harvest.

“Lower oil prices have softened the impact of the government’s energy subsidy reforms. We forecast this will lead to structural improvements in the government’s fiscal and external accounts, as well as create additional room for capital expenditures,” Elisa Parisi-Capone, an Assistant Vice President and Analyst at Moody’s, said.

“We also expect foreign direct investment inflows to remain strong in the next 18 months. Morocco’s stable environment and favourable economic growth prospects make it an appealing destination for investment, particularly in services, newer export industries and alternative energy.”

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49 24/08/2016 16:05

THE VIEW

PICTURE OF THE MONTH

T h e C a m e r o o n i a n w o m e n ’s volleyball team, its first to compete in the Olympics, prepares for its match against the Russian team at Rio 2016. Player Stephanie Fotso (far right) went on to tie with the world record for number of blocks in a match (CREDIT: ANDY MIAH/FLICKR).

POLL

This month we asked our website readers at bankerafrica.com...

What is your outlook on Africa’s attractiveness for investors?

10% 15% 45% 25% 5% 50 page 50 The View037.indd 50

SOLID, BUT SHIFT TO DIFFERENT SECTORS

SOLID AND NO MAJOR SECTOR SHIFT

SUBDUED THIS YEAR, POSITIVE NEXT YEAR

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