#38 - September 2016

ISSUE 38

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ISSUE 38 I SEPTEMBER 2016

CONTENTS

ISSUE 38

SBM eyes the regional stage

Full details at: www.bankerafrica.com

SBM Chairman Kee Chong LI KWONG WING A CPI Financial Publication

PLUS:

24

COUNTRY FOCUS

Currency shocks in Nigeria

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TRAILBLAZERS The ‘final frontier’ of investment

42

Dubai Technology and Media Free Zone Authority

SBM eyes the regional stage SBM Chairman Kee Chong LI KWONG WING

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TECHNOLOGY

Digital security is the key

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CONTENTS

ISSUE 38

Editor’s Letter Hello readers,

I

n last month’s letter from the editor, I mentioned the shuffle for ‘biggest economy in Africa’ between Nigeria, South Africa and Egypt. This month we devote significant page space to two of them—and their troubles. Of course, Nigeria is our country focus this month and there was a lot to cover, from ongoing currency volatility to increasing oil production problems (yes production, not prices!). Our amazing data team also pulled together an analysis of top Nigerian banks’ performance in 2015—and proved that challenges had been building up long before this summer’s events (pg. 24).

Egypt is going through a similar balancing act between account deficits, currency valuation and investments, but recently got a big leg-up from a new IMF programme and VAT law, both of which saw the market rally a bit (pg. 16).

Comparatively, South Africa is doing pretty well! There are still a lot of questions about how best to reinvigorate the economy, but the country did avoid official recession with solid Q2 growth.

Tensions do still exist within the Government that will play out in the months ahead, as Jannie Rossouw explains in his opinion piece this month (pg. 14).

But enough about those three. The cover story and policy spotlight this issue both highlight a small island with big growth, Mauritius. Between the Government’s recent budget announcement that revealed strong initiatives for investment (pg. 30) and insights from our interview with Kee Chong LI KWONG WING, Chairman of one of the country’s biggest banks, Mauritius promises to grow into its vision as a hub for African finance and a link between the continent and the world.

Another interview I’m pretty excited about this month is our talk with Cheick Modibo Diarra (pg. 34), current Chairman of the Africa Legal Network, former Chairman of Microsoft Africa, as well as a Goodwill Ambassador for UNESCO and an astrophysicist—and several other things I simply can’t fit here. Diarra and many others will be at the ALN conference in Dubai next month, so I hope to see you there.

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

Until next time,

Sarah Owermohle

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

20 IN THE NEWS 6 News analysis: Do loan caps limit or protect?

7

Essential financial news from around the continent

10 Spotlight: Tanzania HAPPENINGS 11 Activist picket for sustainable banking

Protestors brought major banks into debate on deforestation violations

11

OPINION 14 It’s hard to get rid of a central bank

governor—here’s why Jannie Rossouw discusses why shake-ups in the South African Government may not impact SARB

MARKETS 16 Finding common ground on

currency and reform A new IMF programme, a new VAT law, potential currency devaluation—it has been a busy few months for Egypt

14

19 Heavy contenders in the Sukuk market

Sukuk make ideal investment models for infrastructure needs, says S&P

COVER STORY 20 SBM eyes the regional stage

A market leader in Mauritius is now looking towards East African growth, says SBM Chairman Kee Chong LI KWONG WING

24

COUNTRY FOCUS: NIGERIA 24 High voltage currency shocks banks

Several economic factors have come down on currency pressures—and on Nigerian banks

POLICY SPOTLIGHT 30 ‘To move forward and up’

Mauritius emerged strong from last fiscal year; now top officials shed light on the future

34

TRAILBLAZERS 34 The ‘final frontier’ of investment

ALN Chairman Cheick Modibo Diarra discusses the challenges and unique opportunities Africa presents to investors

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CONTENTS

ISSUE 38

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

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

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

SECTOR FOCUS 37 Leading the way

42

Bank of Khartoum has often pioneered the market, but now it looks further afield, says Kashif Mohammed Naeem, EVP & Group HeadRetail, SME & Microfinance

40 Inclusion, finance, then growth

46

AfDB Manger of Financial Intermediation Mohamed Khalif discusses how financial inclusion benefits consumers and banks

TECHNOLOGY 42 Digital security is the key to

future growth Mobile phones can be the authentication tokens of the future, writes Jolette Roodt, Analyst at Entersekt

says SWIFT New research from the SWIFT Institute asks—will the financial community accept digital currencies?

INVESTMENTS 46 Sino-Africa investment rising—as

China looks on Japan’s sixth TICAD happened with promises of billions in investment—despite Chinese criticism

OUTLOOK 48 A time for change

50

Africa’s oil and gas industry should take the opportunity to shift strategy, advises PricewaterhouseCoopers (PwC) in new review

THE VIEW 50 Photo and survey of the month

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Publication

WAEMU

Staying afloat on

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trade

OUTLOOK

An ‘inopportune’

exit

SBM ey regionales the stage

SBM Chair

man Kee

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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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SME FINANCE

Reaching Africa’s champions

PLUS:

24

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Chong LI

KWONG

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WING

COUNTRY

FOCU Currency shocks in S Nigeria

34

TRAILBLAZ

ERS The ‘final of investmfrontier’ ent

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TECHNOLO

Digital securit GY y is the key

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

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Dubai Technology

structure Nigeria’s new FX

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Dr. Abdul-Nashiru Issahaku, Governor of the Bank of Ghana

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A CPI Financial

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BOK All Award Ad 21X27cm.pdf

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22/09/2016 14:39

NEWS ANALYSIS

The Kenyan Parliament passed the controversial loan cap law, which some analysts have said could hurt SMEs and access to finance (CREDIT: NICK FOX/SHUTTERSTOCK).

Do loan caps limit or protect?

Following in the footsteps of several African countries seeking to protect consumers, Kenya has enacted interest rate caps

O

n 27 July 2016, the Kenyan Parliament passed a new Banking Bill amendment that would regulate loan and deposit rates for all commercial banks in the country. The impairments, approved by President Uhuru Kenyatta, include a loan rate cap of four per cent above the Central Bank of Kenya (CBK) benchmark rates (CBR), which stood at 10.5 per cent at the time the bill passed.

It also includes a floor on deposit rates of 70 per cent of the CBR, meant to protect consumers and SMEs from extortionate interest rates. However several observers have said that the opposite could be the case, and the bill was met with swift criticism from the Kenya Bankers’ Association (KBA) and individual banking institutions.

“High risk borrowers will now face more obstacles in getting loans. If your risk is higher than the four per cent cap

6 page 6 News Analysis 038.indd 6

that is now in the law, it will be hard for a bank to give you a loan, most small and microfinance companies fall in this category and they are the backbone of the economy,” Habil Olaka, CEO of KBA said in a 25 August press conference.

In a statement on 17 August, Fitch Ratings said that larger banks are better placed than their smaller institutions to manage the fall in profitability that loan impairments could incur.

“We think loan rate caps will also make it difficult for banks to price risk correctly, leading to further weakening of asset quality. Banks might also become more reluctant to lend, adding further pressure on economic growth,” Fitch said, noting that South Africa’s recent rate cap on unsecured consumer lending led to a retrenchment from this segment by some banks.

If rates are capped, Kenyan banks are more likely to become risk averse and place excess liquidity into government bonds.

Profitability could be squeezed as a result, although banks could try to offset this by increasing fees and cutting costs. If some types of lending prove to be unprofitable, business models might have to be overhauled, particularly at the smaller banks, Fitch said.

Non-performing loans (NPLs) have been a steadily rising problem in Kenya and a factor in the CBK’s intervention in several banks’ operations over the past year. According to CBK data, NPLs reached 8.4 per cent of gross loans at end-June 2016, up from 5.7 per cent a year prior.

Following resistance from banks, CBK readjusted its interest rates to 12.9 per cent last month and 14.5 per cent on 14 September. The new base rate applies to both existing and new loans—several banks including Kenya Commercial Bank and Commercial Bank of Africa have adjusted accordingly.

www.bankerafrica.com

25/09/2016 15:24

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Standard & Poor’s revised the ‘BBB-‘ rating of South Africa’s Naspers Group to a negative outlook, citing weak results in the past year and the tough economic environment in South Africa.

Capital Intelligence Ratings (CI) affirmed the ‘B-‘ long-term and ‘B’ short term ratings with a stable outlook of both Egypt’s Commercial International Bank and Bank of Alexandria, matching the sovereign ratings and significant credit risk.

CI also affirmed the ratings of four Moroccan banks, Société Générale Marocaine de Banques, Banque Marocaine pour le Commerce et L’Industrie, BMCE Bank and Banque Central Populaire, all at a financial strength of BBBwith a stable outlook, while it affirmed Credit du Marco’s ‘BB+’/stable rating, noting its good position and liquidity.

ON THE RECORD

Where countries have chosen to belong to a currency union, or maintain a hard peg, the exchange rate will continue to anchor monetary policy. In countries where institutional capacity remains very weak, building that capacity should be the first priority.

— Mitsuhiro Furusawa, IMF Deputy Managing Director, speaking on the 50th anniversary of the Central Bank of Kenya

A QUICK WORD AfDB appoints Abdoulkader Dileita Mohamed Executive Secretary

Dileita, a Djibouti national, previously served as Secretary to the Bank’s Staff Appeals Committee.

South African GDP increased by 3.3 per cent in Q2 2016

The primary sector grew by 8.8 per cent, with mining and quarrying growing by 11.8 per cent.

SOVEREIGNS Moody’s affirmed Egypt’s B3 rating, outlook stable, with the view that the rating accurately captures its current credit risk profile and weak Government finances.

S&P: African Sukuk market has growth potential

S&P says that Africa’s extensive infrastructure development needs create a fertile environment.

AgDevCo invests $1.5 million in Malawi Peanut Factory

Afri-Oils Limited aims to revive Malawi’s groundnut export industry.

S&P affirmed Zambia’s ‘B/B’ ratings with a negative outlook, noting that its public finances remain strained but tight liquidity in the banking sector is easing.

S&P lowered Rwanda to ‘B’ from ‘B+’ on concerns over its balance of payments risk, including a significantly weaker external position and an expected widening of the deficit.

Moody’s said in a report (not a rating) that Mozambique’s Caa3 sovereign rating with negative outlook is constrained by the country’s debt, which is putting liquidity at risk and exposing weak public governance Fitch affirmed Seychelles' sovereign rating at 'BB-'/Stable in July, but noted in a recent statement that an opposition victory in the country’s parliamentary election raises some policy uncertainty, though the IMF programme should remain unchanged.

Peanuts have long been a central African crop (CREDIT: OLLIVIER GIRARD/CIFOR/FLICKR).

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

www.bankerafrica.com

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7 25/09/2016 15:33

IN THE NEWS

Abebe Aemro Selassie named new IMF Director for Africa

C

hristine Lagarde, Managing Director of the International Monetary Fund (IMF), announced the appointment of Abebe Aemro Selassie as Director of the IMF’s African Department.

Selassie, an Ethiopian national that joined the Fund in 1994, succeeds Antoinette Sayeh whose departure was announced previously.

“Abe brings a profound understanding of the challenges facing Africa, having worked closely with policymakers from across the region for much of his career. His proven ability to provide intellectual leadership, track record of building collaborative relationships, analytical depth, and warm collegiality make him ideally placed to lead the IMF’s work with our membership in Sub Saharan Africa. Having had the opportunity to work with Abe over the last five years, I have been struck by his sound judgement, integrity, and commitment to teamwork,” Lagarde said.

During his time in the IMF’s African Department, Selassie was senior resident representative in Uganda, served as mission chief for South Africa, led work on the Regional Economic Outlook, and worked in various roles on countries ranging from Cote D’Ivoire, Ghana, and Kenya, to Burkina Faso, Guinea, Liberia, and Sierra Leone. Most recently, Selassie oversaw the IMF’s effort to assist the three Ebolastricken countries.

South Africa President Zuma says South Africa can avert ratings downgrade The South African Government has several measures in place to ensure that the country averts a ratings downgrade, President Jacob Zuma said during an address to the National Assembly, responding to questions from representatives. He said that the Government remains committed to its February 2016 fiscal targets.

Statistics SA recently announced that the country’s economy grew at 3.3 per cent quarteron-quarter in Q2 2016, a needed bump after a slow Q1—a second contracted quarter would have put the country in recession territory.

“We are sending a good signal to investors and rating agencies,” Zuma said, adding that the Government’s efforts have been supported by improved collaboration with the private sector and labour, including recommendations for sector interventions in tourism, agriculture, health, manufacturing and setting up of a small business fund that has already raised ZAR 1.5 billion.

Africa50 looks for investors at TICAD Africa50, an African Development Bank (AfDB) infrastructure fund, has stepped up its effort to secure investments from foreign and local wealth funds, social security funds and banks, the AfDB said. Alain Ebobissé, CEO of Africa50, spoke at Japan’s recent TICAD summit in Nairobi to say the Fund provided international development institutions with an opportunity to provide funding to governments with weak credit rating.

“We can raise significant capital which we can channel towards long-term savings in Africa,” he told a roundtable of potential investors. Ebobissé said that Africa50 plans to form partnerships with local banks, stock markets, the national social security funds and private equity funds to get funds for long-term projects.

The new fund has set ambitious targets of increasing the threshold of at least $30 billion worth of Africa’s share of foreign infrastructure investments from $8.5 billion currently to rival other regions of the world, such as Latin America which attracts investments worth $30 billion.

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President Jacob Zuma spoke reently at the National Assembly about measures in place (CREDIT: GOVERNMENTZA/FLICKR).

www.bankerafrica.com

25/09/2016 15:34

IMF says CAR is ‘on a recovery path’ A staff team from the International Monetary Fund (IMF), led by Samir Jahjah, visited the Central African Republic (CAR) in September to assess economic and financial developments through endAugust, review early progress under the programme supported by the Extended Credit Facility Instability that sparked in 2014 led to massive internal (ECF) and discuss progress in displacement such as this refugee camp at M’poko Airport preparing for the Brussels Donors in Bangui—but the country is getting back on track (CREDIT: CATIANNE TIJERINA/UN PHOTO/FLICKR). Conference in November 2016. At the end of the visit, Jahjah, IMF Mission Chief for Central African Republic (CAR), said in a statement that since the beginning of the year, “The economy has been on a strong recovery path.”

Namely, Jahjah said that economic activity is picking up, including in the coffee, cotton and forestry sectors, while trade and transport also show better performance than projected. However, he stated that economic growth remains constrained by low public investment spending, weak infrastructure and continued weaknesses in the banking sector. Food prices have declined in the first six months of the year before picking-up during the summer on the back of returning refugees and heavy rains that negatively affected the manioc crop. Fiscal revenue and public expenditure are broadly in line with projections, while arrears clearance has been higher than projected.

“As a result, economic growth is projected at 5.2 per cent and inflation at four per cent, with downside risks if recent inflationary pressures observed in Bangui persists through the year. The overall fiscal balance is expected to be in line with the programme objective of a primary deficit of 3.3 per cent of GDP in 2016,” he said.

Attijariwafa records 7.9 per cent profit boost in H1 2016 Attijariwafa Bank, a Moroccan institution with operations in Cameroon, Congo Brazzaville, Côte d’Ivoire, Gabon, Mali, Mauritania, Senegal and Tunisia, recorded steady progress in the first half of 2016, according to its latest financial results. Its net profit rose 7.9 per cent to MAD 2.5 billion ($257.7 million) while return on equity jumped 15.5 per cent (RoE) and return on assets (RoA) rose 1.4 per cent—0.9 points and 0.1 points’ increase respectively compared to the first half 2015.

Overall, Attijariwafa’s net income increased 3.5 per cent to MAD 10.1 billion ($1.04 billion) through what it reported as a combination of interest margin (+0.2 per cent growth), net fee income (+11.6 per cent growth) and income from market activities (+7.9 per cent).

The bank said in a statement that the growth was driven largely by its international retail banking subsidiaries, which contributed to net banking income, consolidated net income and net income the growth in Group 9.4 per cent, 34.9 per cent and 58.6 per cent respectively. Attijariwafa increased its stake in two high-performing subsidiaries, Senegalese CBTA and Ivorien SIB, to 83 per cent and 75 per cent respectively in Q4 2015, giving a boost to H1 2015 performance.

Emirates NBD coordinates Stanbic Uganda’s two-year loan facility

S

tanbic Bank Uganda Limited, a subsidiary of Standard Bank Group, signed a $55 million two-year term loan facility on 8 September with Emirates NBD Capital Limited as the Sole coordinator and Bookrunner of the financing.

Al Ahli Bank of Kuwait K.S.C.P, Bank of Baroda, SBM Bank (Mauritius) Ltd and The Commercial Bank (Q.S.C.) joined the transaction as Mandated Lead Arrangers. Stanbic Uganda said that the loan will be used in part to finance energy, agriculture, mining and manufacturing, among other sectors.

The facility was was oversubscribed from the initial launch amount of $40 million and pays 275 basis points margin over LIBOR. Ahmed Al Qassim, CEO, Emirates NBD Capital said, “Since the beginning of 2015 we have arranged a number of syndicated loan transactions for African financial institutions. We are pleased to have again partnered with Standard Bank Group in yet another landmark transaction for its subsidiary, we are proud to be the main banking partner for Standard Bank Group and its subsidiaries in the GCC. We consider ourselves as the gateway to Middle-Eastern investors for global institutions, and we are currently working with institutions from various geographies and introducing them to the region.”

Botswana Savings Bank partners with CR2 on ATM tech Botswana Savings Bank (BSB) launched its Smooth Visa Debit Card at an event in Gaborone this summer, a new CR2-enabled service that allows BSB customers using the bank’s visa debit card to access services at any banks’ ATM in the country.

Tshenolo Mabeo, Botswana Minister of Transport and Communications, commended the technology implementation. “Customers of today are spoilt for choice and continue to demand better services with technological advancements,” he said. “This is innovation at its best.”

www.bankerafrica.com

page 7-9 In the News 038.indd 9

9 25/09/2016 15:41

NEWS SPOTLIGHT TANZANIA

IFC launches web portal for offgrid energy access

Exports revenue rises on gold and manufacturing, says BoT

R Mini grids are a common method for high-density populations that live outside the reach of the national electricity grid, the IFC said (CREDIT: URBANS/SHUTTERSTOCK).

The International Finance Corporation (IFC), launched a web portal on 11 August to speed the development of mini-grids in Tanzania, the last step in a $5 million programme launched in 2015 to help implement affordable energy. It said the technology would help the country boost its energy production and increase access to electricity through renewable sources such as solar and hydro.

The portal, http://www.minigrids.go.tz/, provides licensing, financing, regulatory, and other information and support to small, renewable power producers in Tanzania who want to sell electricity to consumers, especially to the millions in the country not connected to the main grid.

“The portal is part of IFC’s wider strategy in Tanzania to increase access to energy, especially to low-income communities that are not connected to the main grid. IFC is at the forefront of designing and implementing new solutions to help increase access to energy in Africa,” IFC’s Regional Lead for Energy & Resource Efficiency advisory services, Dan Shepherd, said.

evenue from tourism, manufactured goods and gold rose in the year ending 30 June 2016, according to a review the Bank of Tanzania (BoT) released this September. It also found that exports revenue grew by eight per cent to $10.1 billion during the period, while imports fell by 15.2 per cent to $11.33 billion in the year ending June 2016.

“A large part of the improvement occurred in travel which is mainly tourism; manufactured goods and gold,” BoT said in a statement. Tourism grew from $2.19 billion at end-June 2015 to $2.27 billion at end-June 2016, while gold exports rose from $1.23 billion to $1.33 billion. Though the report found that exports of traditional raw goods such as cotton, tobacco and cashews fell, overall the value of manufactured goods grew by 11.1 per cent to $1.46 billion.

Barclays Bank Tanzania launches mortgage loans Barclays Bank Tanzania launched mortgages with a maximum ticket size of TZS 500 million on 25 August 2016. The loans are specifically for the acquisition of finished or ready-made houses and equity release, and will be offered at an interest rate of 19 per cent, the bank said.

Barclays Tanzania Head of Products & Business Strategy Oscar Mwamfwagasi said that loans would include flexible payment periods of one to 20 years. In order to qualify one would need to route at least six months’ salary via Barclays account or submit a minimum of 12 months bank statements for review on nonBarclays customer applications. Customers would be required to cover life and property insurance together with the transfer costs.

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Exports of manufactured goods accounted for most of the revenue increase, according to BoT’s report (CREDIT: IGOR GROCHEV/SHUTTERSTOCK).

www.bankerafrica.com

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25/09/2016 15:44

HAPPENINGS

Activist picket for sustainable banking The Bidco Truth Coalition recently picketed outside major banks’ offices, alleging that a client had violated deforestation policies

B

arclays and Standard Chartered were the target of London-based protests on 23 August, picketed by members of an organisation rallying against multinational conglomerate Bidco Africa.

The protestors, backed by the Bidco Truth Coalition (No2Bidco) claimed that the banks’ business with Bidco, which is believed to be a client of both, violated the terms of the Banking Environment Initiative (BEI) an agreement between 11 banking institutions supported by Cambridge University’s Institute for Sustainability Leadership (the other members include Deutsche Bank, Goldman Sachs, Lloyds, Northern Trust, RBS, Santander, BNP Paribas and BNY Mellon and Westpac).

One of the BEI’s primary objectives is the ‘Soft Commodities’ Compact that seeks for members to help clients achieve zero net deforestation by 2020.

No2Bidco alleges that the independent Bidco Africa subsidiary in Uganda has been responsible for 18,000 acres of deforestation to develop its palm oil farms, an accusation that the company strongly denies.

“There has been no deforestation— there are 16 forest reserves on Kalangala Island [the site of the Bidco farms, and] all of them are intact.

Pharis Kimaru, Communications for Bidco Africa, said.

Protestors in London called for major banks to cut ties with goods manufacturing company Bidco Africa (CREDIT: NO2BIDCO).

However No2Bidco said that the World Bank had pulled out of a previous Bidco Uganda project, in 2004, “citing violations of the World Bank’s antideforestation policies.”

Following the London protests, Bidco Africa said in a statement that the organisers were ‘harassing’ and trying to ‘blackmail’ the company.

“No forests were taken in Uganda, there have been four independent

Environmental Impact Assessments done and they all give the project a clean bill of health,” Kodey Rao the Bidco Uganda Managing Director, said. He also responded to allegations that the company seized land from smallholder farmers, saying that there was just one dispute with a squatter over the course of the company’s acquisition.

The Bidco Africa headquarters in Kenya is currently in court for a tax evasion lawsuit alleging that the company dodged KES 5.7 billion in taxes.

Answering the tax evasion allegations, Bidco Africa CEO Vimal Shah said, “We are a proudly Kenyan company. We gladly pay on average about $70 million a year in taxes and just because we have one dispute over the computation of one tax bill we are bad guys. The case is in court, why not let the courts decide?”

In a statement, No2Bidco pushed Barclays and Standard Chartered to cut ties with Bidco (neither bank has responded to the protests). “No2Bidco. org has never demanded anything from Bidco other than good governance,” the organisation said. “We urge the public and Bidco’s partners to study the information and come to their own conclusion about Bidco Africa. Some of the greatest changes in companies and society have come through activism, and this inspires us.”

www.bankerafrica.com

page 11 Happenings 038.indd 11

11 25/09/2016 15:45

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OPINION

It’s hard to get rid of a central bank governor—here’s why Ongoing shake-ups in South Africa’s government have threatened to reach the central bank, the South African Reserve Bank, writes Jannie Rossouw, Head of Economic & Business Sciences, University of the Witwatersrand—but can Zuma’s Government actually change the bank’s leadership?

W

ith the continued harassment of South Africa’s Finance Minister Pravin Gordhan, it has become patently clear that no institution will be spared in the wave of state capture that is sweeping through the country.

The finance ministry has been at the centre of this wave for nearly a year.

The latest move against Gordhan comes against a backdrop of efforts to wrest control of this particular portfolio. The most spectacular was President Jacob Zuma’s decision in December 2015 to fire then Finance Minister Nhlanhla Nene and replace him with someone more agreeable to his plans.

That plan backfired. President Zuma had no option but to reappoint Gordhan, the previous Minister of Finance. But Gordhan is now back in the firing line after refusing to give ground to Zuma on some crucial issues. Rumours persist that the finance minister is about to be fired or charged—possibly even arrested—by the elite police unit, the Hawks.

Is the Governor of the South African (SA) Reserve Bank next?

14 page 14-15 Opinion_038.indd 14

This consideration comes on the back of political attacks directed at the country’s central bank by senior members of the governing African National Congress (ANC) aligned with Zuma.

The Deputy Secretary General of the ANC Jessie Duarte has raised questions about the central bank’s role. She is suggesting that the bank serves partisan interests because it has private shareholders.

It has also emerged that Mosebenzi Zwane, the Minister of Mineral Resources, tabled a working paper to the Cabinet recommending that the power to issue banking licences should be taken away from the SA Reserve Bank and given to the minister of finance.

But can the Governor be removed as easily as a minister of finance? My reading of the SA Reserve Bank Act is that the answer is no. The current legislation makes no provision for the President to dismiss the central bank governor.

HOLDING CENTRAL BANKERS TO ACCOUNT Central banks’ governors need security of tenure once appointed.

Security of tenure allows them the opportunity to conduct monetary policy in the interests of the whole country without fear of dismissal.

Imagine a scenario in which a central bank governor was dismissed every time he or she took a monetary policy decision that the government disliked —for example by raising interest rates.

This would render the job unworkable.

Because of this, the appointment of central bank governors has been designed to ensure that they can get on with their mandate without political interference.

The Governor of the SA Reserve Bank is appointed by the President of the Republic after consultation with the Minister of Finance and the Board of the South African Reserve Bank.

Appointments are for an initial five years. Once the first term is served, the President can reappoint the Governor for an unlimited number of further terms, each of a maximum period of five years.

So much for the appointment. What about getting rid of a governor?

The SA Reserve Bank Act lists conduct that will render the Governor

www.bankerafrica.com

25/09/2016 15:48

Jannie Rossouw, Head of School of the Economic & Business Sciences, University of the Witwatersrand.

unsuitable to complete any term of appointment. Other than on these grounds, no provision is made for the dismissal of the Governor.

So how would a governor be removed if he or she was considered to be unsuitable for office? This is open to some debate, but it seems that there might be at least two possibilities: First, the government (including Parliament) or any other party can take legal action to have the governor declared unfit to hold office. The governor and his deputies serve as directors of the central bank. As such they are bound by rules which demand that they remain fit and proper to serve. The act sets out in some detail what fit and proper entails. It includes avoiding conflicts of interest between personal interests and the interests of the central bank and not working for a bank. If the incumbent falls short of any of these requirements, there is recourse to taking legal action against them.

Second, Parliament can amend the South African Reserve Bank Act to give the President power to dismiss the Governor.

My understanding is therefore that the President cannot simply remove the Governor of the SA Reserve Bank.

It would require—at a minimum—legal action or a parliamentary process.

CENTRAL BANKS SHAREHOLDERS

WITH

Duarte’s main point of contention is that South Africa’s central bank has private shareholders which means that it cannot act independently. This is not true.

South Africa is not the only country with a central bank owned by private shareholders. While most central banks in the world are publicly owned, there are a handful that aren’t. These include Belgium, Greece, Japan, Switzerland and Turkey. In the case of the US and Italy, only shareholding by commercial banks is allowed.

In none of these instances is there evidence that private ownership affects the institutions’ independence. In fact, it can be argued that a private ownership structure adds to the transparency and accountability of central banks. For example, the SA Reserve Bank publishes a comprehensive annual report for distribution to shareholders. In addition, it has to hold an annual ordinary general meeting of shareholders at which the Governor responds to questions about the business of the central bank and the conduct of monetary policy.

The link that Duarte tries to make between the central bank’s shareholding and its approach to exchange rate policy simply does not exist. The SA Reserve Bank made this point clearly in a statement it issued shortly after Duarte’s salvo. This points out that shareholders play no role in the formulation and implementation of monetary policy.

On its approach to exchange rate policy, South Africa’s central bank takes a stance similar to most central banks in the world: namely, that any attempt to influence the value of a currency by intervening in the market is futile.

China is an exception to this rule. It has a controlled economy and has substantial foreign currency reserves with which to support the yuan in the open market.

The SA Reserve Bank serves the best interests of all South Africans.

The Governor’s security of tenure supports the efforts of the central bank to contain inflation. At the same time a structure of private shareholders in the central bank helps to improve monetary policy transparency.

This article originally appeared on The Conversation Africa. Jannie Rossouw owns shares in the SA Reserve Bank and previously worked for the central bank.

He is a C2-rated researcher and gets annual research funding from the South African National Research Foundation.

www.bankerafrica.com

page 14-15 Opinion_038.indd 15

15 25/09/2016 15:48

THE MARKETS

A new series of reforms seeks to alleviate currency pressures that have limited banks’ lending and liquidity in the current Egyptian market (CREDIT: LEONID ANDRONOV/SHUTTERSTOCK).

Finding common ground on currency and reform A new IMF programme, a new VAT law, potential currency devaluation—it has been a busy few months for Egypt

16 page 16-18 Markets 038.indd 16

www.bankerafrica.com

25/09/2016 15:51

O

n 11 August, Egypt and the International Monetary Fund (IMF) reached their third stafflevel agreement and their first extended fund facility (EFF) arrangement in the post-Mubarak Government. The threeyear $12 billion EFF will go to ‘quick implementation’ of urgent economic and fiscal policy reforms, the IMF said.

The arrangement was met with relief

by Egyptian markets and international analysts. According to VTB Capital, sovereign bonds dated 2025 and 2040 rallied 11-14 points since endJune, when talk of a potential IMF programme first rose.

Yet the IMF programme was just one headline-making announcement this summer. A value-added tax (VAT) bill was debated in Parliament and passed on 28 August, ensuring new sources of revenue and the possibility of World Bank and African Development Bank lending that was conditional on VAT. There has also been discussion of adjusting the Egyptian pound’s exchange rate or even de-pegging the currency in the near future.

All this has been to counteract spiralling foreign exchange and budget deficit problems—the Egyptian Government currently projects a $21 billion funding gap over the next three years.

“The only reason why a full blown economic crisis has not taken place, despite extremely weak economic indicators, is because the banking system, nearly half Governmentowned, is able to rollover maturing local currency government debt, about 30 per cent of GDP, in addition to providing new financing,” Raza Agha, Chief Economist for Middle East and Africa at VTB Capital, wrote in a recent assessment. “Meanwhile, an external crisis has been prevented via banks investing in hard currency short term debt [USD/EUR treasury

bills], capital controls that have stifled import demand and kept the large non-government FX deposit base of $36 billion stable, delayed payments for goods and services, and the benevolence of Arab donors.”

IMF Mission Chief for Egypt Chris Jarvis said that under the EFF programme, general government debt is expected to decline from about 98 per cent in 15/16 to about 88 per cent

Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs.

– Chris Jarvis, IMF Mission Chief for Egypt

of GDP in 2018/19 through a mix of new revenue (such as VAT) and ‘rationalised’ spending that will include a reassessment of energy subsidies.

“The CBE monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the programme. Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs,” Jarvis said.

“Financial sector policies will be geared toward safeguarding the strength and stability of the banking system,” he added.

REVENUE STREAMS AND THE CURRENCY PLAN VAT, which will go into effect on 1 October, will be an important new revenue stream—although some have argued that over-zealous exemptions (57 total, up from the proposed 52 items) have made it less effectual than it needs to be. However with the IMF programme and World Bank lending on the horizon, the Government is also assessing capital gains tax, increased customs taxes and other policy measures. To cut down spending, public sector wages and energy subsidies will be first under the microscope.

The IMF also hinted at longdiscussed exchange rate flexibility and the possibility of a floated currency in the statement released after Jarvis’ visit.

“The CBE monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the programme. Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs,” Jarvis said.

VTB Capital suggested that debate between Egyptian authorities and IMF officials had stalled new currency policy, with the IMF pushing for a free-floating currency and authorities resisting in favour of a more gradual devaluation.

“On the latter, unconfirmed media reports suggest the IMF wanted the exchange rate around EGP 11.6/USD, 30+ per cent weaker than the current spot, but still about 10 per cent lower than the black market rate which touched 13/USD at its weakest in late July.

Meanwhile, the Government reportedly wanted a rate of EGP 10 to 10.6/USD,” VTB Capital’s Agha said. “Whatever the truth, the government’s sensitivity to the cont. overleaf

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17 22/09/2016 12:13

THE MARKETS

cont. from page 17

trajectory of the exchange rate, even in the unofficial market, is clear in the fact that a total of 47 exchange houses have now had their operating licences revoked or suspended on allegations of currency speculation.”

RATINGS’ REACTIONS Moody’s called the VAT ‘long-awaited’ despite being passed at one per cent lower than the proposed 14 per cent rate and including several more than the expected exemptions, which the ratings agency said will result in a EGP 12 billion ($1.35 billion) shortfall, or one-third less than the VAT revenue increase assumed in the current budget for fiscal 2017. Despite all this, Moody’s rates the VAT as credit positive.

“The VAT forms an integral part of the government’s reform programme over the coming three years and together with reforms to tax administration, will gradually increase Egypt’s low tax receipts and support its fiscal consolidation efforts,” Moody’s said in a statement. It also expects that the Government will partially make up the loss in the 2018 fiscal year, when the VAT will move up to 14 per cent.

But as a result of the current water-downed VAT, Moody’s does forecast that the Government will underperform on its revenue and fiscal deficit targets, hitting a 12 per cent fiscal deficit for 2017 rather than the targeted 9.9 per cent. This assumes that GDP will grow 3.5 per cent during the same year, which is lower than the Government’s four per cent projection.

It also expects the VAT to exacerbate already high inflation.

“Nevertheless, we think that VAT is an important step to increase Egypt’s tax revenues…Egypt has one of the lowest tax takes among its peers given the size of its economy and total Government revenues, and it has a declining share of tax revenues over time,” Moody’s said.

18 page 16-18 Markets 038.indd 18

Tax Revenues in Egypt and Peer Countries in Tax Revenues in Egypt and Peer Countries in 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0%

Tax Revenues as Percent of GDP Tax Revenues as Percent of GDP

Pakistan Pakistan B3 B3

Egypt Egypt B3 B3

Tax Revenues as Percent Total Revenues Tax Revenues as Percent Total Revenues

Lebanon Lebanon B2 B2

Jordan Jordan B1 B1

Ghana Ghana B3 B3

Bosnia Bosnia B3 B3

Tunisia Tunisia Ba3 Ba3

Sources: National Ministries of Finance, Central Banks, Haver Analytics and Moody’s Investors Service Sources: National Ministries of Finance, Central Banks, Haver Analytics and Moody’s Investors Service

Tax Revenues as Percent of GDP Tax Revenues as Percent of GDP

70% 70%

Tax Revenues as Percent Total Revenues Tax Revenues as Percent Total Revenues

60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2002 2002

2003 2003

2004 2004

2005 2005

2006 2006

2007 2007

2008 2008

2009 2009

2010 2010

2011 2011

2012 2012

2013 2013

2014 2014

2015 2015

Sources: Egypt Ministry of Finance, Central Bank of Egypt and Haver Analytics and Moody’s Investors Service Sources: Egypt Ministry of Finance, Central Bank of Egypt and Haver Analytics and Moody’s Investors Service

“VAT will also unlock much needed external funding for Egypt. As grants and deposits from Gulf Cooperation Council member countries have slowed, funding from official donors such as the International Monetary Fund, World Bank and the African Development Bank is a crucial component to meet Egypt’s external funding gap. The disbursement of the first tranche of a $3 billion loan from the World Bank stalled because of delays in the VAT approval. The VAT introduction, along with reforms to the exchange rate regime, has been a cornerstone of recent negotiations with the IMF for a $12 billion loan.

An approved IMF programme will in turn encourage other bilateral and multilateral donors to engage with Egypt,” it concluded, echoing similar

statements from VTB Capital and the IMF itself.

Capital Intelligence Ratings (CI) also cited the IMF programme and the Government’s reform commitment in its 2 September announcement that it affirmed Egypt’s Long-Term Foreign and Local Currency Ratings of ‘B-’ and its Short-Term Foreign and Local Currency Ratings of ‘B’, all with stable outlook. CI noted the usual challenges but projected four per cent GDP growth in the next year.

It also said that debt levels are projected to surpass 94 per cent of GDP in the 2018 fiscal year, “But nearterm refinancing risks are partially mitigated by the current appetite of the banking system to invest in sovereign debt issues and by Egypt’s limited access to capital markets.”

www.bankerafrica.com

25/09/2016 15:52

MARKETS

Heavy contenders in the Sukuk market With recent issuances by Côte d’Ivoire and Togo, S&P Global Ratings predicts more infrastructure-driven Sukuk out of Africa WILLIAM POTTER/SHUTTERSTOCK

R

iding the success of previous Shari’ah-compliant bond offerings on the continent, Côte d’Ivoire and Togo both issued XOF 150 billion ($255 million) Sukuk last month, of seven-year and 10-year periods, respectively. These followed recent issuances by Senegal, South Africa, Nigeria’s Osun State and a previous one by Côte d’Ivoire.

According to new research by Standard & Poor’s Global Ratings (S&P) the trend will continue as sovereigns look for ways to fund massive infrastructure projects over the medium-term.

“We believe African Sukuk can provide diversification benefits for Islamic investors as well as additional financing opportunities,” S&P Global Ratings Credit Analyst Samira Mensah said. “Moreover, we think sovereign Sukuk issuance could, in the long term, facilitate the development of Shari’ahcompliant private-sector Sukuk on the continent. Given Africa’s significant funding and infrastructure needs,

sovereigns there could benefit from an active Sukuk market.”

Yet according to an S&P article, Africa’s Small Sukuk Market Shows Significant Promise, the African market comprises only $2 billion of Sukuk from a handful of issuers. By contrast, 17 Sub Saharan African (SSA) governments rated by S&P issued $46 billion of conventional debt in 2015 alone.

African sovereigns have a lot of groundwork ahead of them to issue Sukuk, which may be why despite the appeal, only a few will issue in the next year. S&P pointed to a general lack of clear legal and tax regimes to support Shari’ah-compliant offerings such as Sukuk, which can be quite complicated.

Multi-lateral institutions such as the Islamic Corporation for the Development of the Private Sector (ICD) help significantly in this area— the ICD gave technical support to both Senegal’s 2014 and 2016 issuances, and acted as lead arranger for Côte d’Ivoire and Togo this year.

S&P said in its report that it sees South Africa and Côte d’Ivoire as “serious contenders” to attract foreign investors because of their large infrastructure funding needs but welldeveloped financial infrastructure.

“In our view, the increasing involvement of multilateral institutions is one of the keys to unlock the full potential of the continent’s fledgling Sukuk market,” Mensah said.

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.

Côte d’Ivoire’s second issuance closed on 31 August. Also an Ijara Sukuk, it 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 and the property of several Government ministries.

www.bankerafrica.com

page 19 Markets 038.indd 19

19 25/09/2016 15:54

COVER STORY

SBM eyes the regional stage Long one of the market leaders in Mauritius, State Bank of Mauritius (SBM) is gearing up for East African growth alongside its new products to support Mauritian businesses, says Chairman Kee Chong LI KWONG WING

20

www.bankerafrica.com

page 20-22 Cover Story 038.indd 20

22/09/2016 12:24

M

auritius may be a small island, but its banking and finance sector has been growing in big ways. Besides constant innovations to capture the island’s SME, corporate and investment banking potential, Mauritian institutions have also worked to forge a link between South Asia and the African continent, a position that they may be uniquely primed for as a business centre that sits geographically and in many ways culturally between the two regions. The State Bank of Mauritius (SBM) is no exception—with operations in India and Madagascar, as well as a large market share in Mauritius itself, the bank is now looking to expand further into East Africa and open up opportunities for its international business clientele. SBM Holdings Ltd Chairman Kee Chong LI KWONG WING sheds light on SBM’s ambitious plans for growth and evolution in banking.

How do you see SBM’s position in Mauritian banking?

SBM came into existence in 1973 and has grown over the years to become the second biggest provider of financial services in Mauritius today. During this time, the Group has endeavoured to respond to customers’ needs and it was the pioneer with regard to the debit card business, phone banking and e-commerce. Today, SBM has more than 20 per cent market share in the domestic market, and a customer base of around 400,000 out of a population of 1.2 million.

To further consolidate its position in the market, the Group has embarked on a five-year growth strategy put together by McKinsey last year. In the same vein, we are investing heavily in technological transformation of our banking operations to improve our efficiency so as to serve our customers more quickly and efficiently but also

for the development of new financial products that meet the needs of all our customers.

and an investment fund to give further options for clients wishing to benefit from the Africa growth story.

What is SBM’s progress on plans to acquire institutions in Seychelles and Kenya?

Outside these two markets, what are your regional growth aspirations?

SBM has been granted approval for a banking licence in Seychelles, subject to certain conditions. We are currently in the implementation phase. Many Mauritian corporates have set up operations in Seychelles, and we would

We are planning to expand our existing operations in Madagascar and India.

We have already opened two additional branches in Madagascar in the last two years, and are ramping up our operations in India. SBM will thus be ideally placed to finance India-Africa trade and investment opportunities.

SBM is pursuing acquisition options in Kenya, as an entry point for the East African market…Besides interest from Mauritian corporates in this region, we are planning to tap into the growing trade and investment opportunities in East Africa.

– Kee Chong LI KWONG WING, Chairman of SBM

be accompanying their growth therein.

At the same time, we would provide innovative and customer-friendly products for the Seychelles market.

SBM is also pursuing acquisition options in Kenya, as an entry point for the East African market. Again, besides interest from Mauritian corporates in this region, we are planning to tap into the growing trade and investment opportunities in East Africa. Alongside the acquisition initiative, SBM is also setting up an Africa-focused private equity fund, as well as a trade fund

How has China’s reduced activity and an overall slowdown in commodity prices over the past year impacted SBM’s own business and strategy?

SBM does not have significant exposure to China, nor to commodities, and has thus not been significantly affected by these developments.

The Minister of Finance introduced a new series of measures this summer to encourage investment and growth—how might this shift SBM’s strategy or focus?

The new series of measures are in line with SBM’s strategy and will enable the Group to speed up implementation of a number of initiatives. For example, we intend to have specific products targeting at the blue economy and the green economy. We will also revamp our wealth management proposition and provide structured financing and advisory to our corporate clients.

Besides, we will launch a microfinance entity to tap the bottom of the pyramid.

To encourage innovation, SBM plans to come forward with an incubator and a ‘centre of excellence’. All these initiatives are in line with the spirit of cont. overleaf

www.bankerafrica.com

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21 22/09/2016 12:24

COVER STORY

cont. from page 21

the National Budget and are some of the measures, alongside international diversification, that will help the Group achieve its target of more than doubling profit in five years.

As a relatively small market, what are the areas left to grow in Mauritius, in terms of banking products and services?

Customers are becoming more demanding and increasingly sophisticated. Even in this small market, today, there is a need to constantly innovate and meet their expectations.

For this year alone, SBM has already launched five new products to tap new market opportunities. There has been a positive response indicating that there is indeed room for growth.

We will also soon launch our new website, internet banking service and mobile banking application. In addition, despite Mauritius having a high banking penetration, there is a certain proportion of the population which is not adequately serviced. At SBM, we are working to address these deficiencies. As mentioned above, we have already started with the announcement of our Microfinance Scheme aimed at entrepreneurs not able to secure financing for their projects. In the same vein, a tailor made Blue Loan has been announced to serve individuals and firms venturing into aquaculture, industrial fishing, marina and ocean-related leisure and other activities.

Your pre-tax profits rose significantly in Q2 2016—what are your goals and/or forecasts for performance in 2016 as a whole?

We expect expenditure to rise in the second half as higher technologyrelated costs linked to the implementation of the new system kick in. However, we plan to maintain

22

cost to income ratio below 50 per cent, and aim to achieve a return on assets of above two per cent and a return on capital of 12-15 per cent. Looking further forward, we plan to improve on these ratios through a higher share of international business as well as a stronger contribution from nonbanking financial services.

SBM has a 20 per cent market share in Mauritius and is looking to further expand its presence in Africa, said Chairman Kee Chong LI KWONG WING

What do you see as the biggest risks to this kind of growth, and how is SBM managing these?

As we increase exposure in different countries outside Mauritius, we need to be alive to the risks of a lack of market knowledge.

This is why we are building capacity towards understanding markets and are reviewing our risk framework. Expansion of our geographical footprint should also help towards better understanding these markets. At the same time, diversification of markets can make our revenue base more robust.

In a bank of this size, what is your personal management approach?

My aim is to drive the employees towards excellence. That is why I lay much emphasis on innovation and people development.

I also encourage cross-pollination across teams to enhance synergy within the Group.

Besides, I have an open door policy and am always available for advice and direction.

www.bankerafrica.com

page 20-22 Cover Story 038.indd 22

25/09/2016 15:56

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COUNTRY FOCUS NIGERIA

High voltage currency shocks banks Oil prices, oil production, the naira’s devaluation, the rise in non-performing loans, the harsh realities of certain Government policies—the list goes on, but what happens now to Nigerian banks and the economy?

W

hen an economy is in crisis, it is difficult to point to one dominant factor in the decline.

Nigeria, now officially in a recession, is no exception.

According to the National Bureau of Statistics (NBS) the economy contracted by 0.36 per cent in the first quarter of the year and 2.06 per cent in Q2, the largest contraction in 49 quarters.

In a speech at the National Institute of Policy and Strategic Studies on 2 September, days after the recession was announced, Central Bank of Nigeria (CBN) Governor Godwin Emefiele said that, “developments over the last two years show that these are not normal times by any stretch of imagination” but that the CBN has always acted ‘in good faith’.

Responding to criticism of the Bank’s recent regulations, he said, “When you have policies that people are praising, that means such policies are not really good, because the people praising the policies know that they can circumvent them. But if people criticise your policies, especially in Nigeria, such

24

policies are good; the people criticise them because they know that they cannot circumvent them.”

There are several policies Emefiele may be referring to, from the 15 June decision to de-peg the naira from 197/USD, to the 2 August block of remittances from all money transfer operators but three (more in box out on page 28). The same day the naira floated, the Bank also barred multiple banks from participating in the foreign exchange market, allegedly for their failure to remit crude oil sales revenues from entities operated by the Nigerian Petroleum Development Company (NPDC).

Banks have felt the pressure. Though the CBN denied any distress in the system, 4 July saw the entire board and management of mid-tier Skye Bank resign, to be replaced with Central Bank management. According to a CBN statement, Skye had persistently failed to meet minimum thresholds in prudential and adequacy ratios, but the banking system as a whole remained strong; according to our data below, the economy’s slow decline before this

summer’s challenges has already put the sector in a precarious position.

“The economy is moribund, bank credit is contracting and bad loans will spike,” BCA Research’s Rajeeb Pramanik said in a recent report advising investors to avoid Nigerian stock for the time being. At the time of writing, inflation stood at 15 per cent—but has risen to 17.6 per cent by end-August 2016.

Despite this, Pramanik said that devaluing the naira made sense, “As not doing so was building up distortions in the economy. It will also help put a bottom under Nigeria’s fiscal deficits. As such, investors may consider going long/overweight Nigerian sovereign spreads.”

Many of the structural issues in Nigeria’s fiscal policy and budgeting did not come to light until oil prices dropped.

Pramanik says that Nigeria’s problem of “over consumption and under-savings” is now more apparent than ever, and it will have a challenging time filling the gap left by oil revenue here.

“Poor productivity gains in particular have been a result of low capital

www.bankerafrica.com

page 24-28 Country Focus-Nigeria 038.indd 24

25/09/2016 15:59

TOP BANKS BY ASSETS SIZE & ASSETS $ CHANGE ($ '000)

BEST BANKS

(854,168) 4,068,455

Sterling Bank (818,411) Fidelity Bank Nigeria

6,268,305 (414,333) 5,079,578

Union Bank of Nigeria

First City Monument Bank Nigeria

(127,081) 658,414 12,274,524

Access Bank Nigeria 441,953 Assets 2015

Assets $ change

Rank

Bank

1

Access Bank Nigeria

2

Zenith Bank Nigeria

3

Guaranty Trust Bank Nigeria

4

United Bank of Africa Nigeria

5

Fidelity Bank Nigeria

6

First Bank of Nigeria Group

7

Union Bank of Nigeria

8

First City Monument Bank Nigeria

9

Sterling Bank

10

EcoBank Nigeria

11

Diamond Bank Nigeria

CPI Financial

CPI Financial

FASTEST GROWING BANKS

TOP BANKS BY REVENUE 2015 ($'000)

EcoBank Nigeria

868,539

Guaranty Trust Bank Nigeria

982,043

Access Bank Nigeria

1,058,830

First Bank of Nigeria Group

1,296,188

Zenith Bank Nigeria

1,433,674

CPI Financial

(1,020,616) 9,526,824 (834,745) Sterling Bank

3,582,115 (718,745)

Fidelity Bank Nigeria

5,334,382 (362,735)

Union Bank of Nigeria

3,905,695 10,440,281

Access Bank Nigeria Lia 2015

CPI Financial

Lia $ change

Bank

1

Access Bank Nigeria

2

Zenith Bank Nigeria

3

Fidelity Bank Nigeria

4

Guaranty Trust Bank Nigeria

5

United Bank of Africa Nigeria

6

Union Bank of Nigeria

7

First City Monument Bank Nigeria

8

Sterling Bank

9

EcoBank Nigeria

10

First Bank of Nigeria Group

11

Diamond Bank Nigeria

CPI Financial

TOP BANKS BY LIABILITY SIZE & LIABILITY $ CHANGE ($ '000)

Guaranty Trust Bank Nigeria

Rank

formation in productive capacity and infrastructure,” he said, adding that one of the reasons for Nigeria’s low savings rate is policymakers’ inability to tame chronically high inflation. As a result, banks deposits have earned negative real interest rates for much of the last decade, according to BCA Research.

BANKS—WEATHERING THE STORM? The data we have collected on bank’s performances compares annual reports from 2015 and 2014, thus does not include this year’s rollercoaster of currency movements and credit ratings. cont. overleaf

www.bankerafrica.com

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25 25/09/2016 16:03

COUNTRY FOCUS NIGERIA

The pipeline problem

The recent drop in oil production is not all about price—line vandalism and rising tensions have hit the sector, and Government revenue, hard (CREDIT: CRISTIANO ZINGALE/FLICKR).

Though the oil sector accounts for just 10 per cent of Nigeria’s GDP—relatively small for an oil-producing country—it contributed 62 per cent of consolidated Government revenues and nearly 93 per cent of the country’s export proceeds in 2014, according to IMF numbers cited by VTB Capital. Low prices are not the only factor in oil’s drag on the Nigerian economy—both VTB Capital and Standard & Poor’s (S&P) have recently highlighted destructive pipeline vandalism and increasing tension in the Niger Delta as core risks to oil production.

S&P said that while oil price assumptions have remained unchanged since its earlier March review, oil production levels have declined from an average of 2.1 million barrels per day (bpd) in the first quarter to an average of 1.7 million bpd in the second quarter.

“Oil production in the third quarter has remained weak but may improve in the fourth quarter and next year as the government negotiates with militants and sabotaged pipelines are repaired, mainly Shell’s Forcados export pipeline with a capacity around 300 thousand bpd,” S&P said.

According to research by Raza Agha, VTB Capital Chief Economist for the Middle East and Africa, there

26

were over 16,000 pipeline breaks in the 10 years to 2015, of which 97.5 per cent were due to vandalism.

An estimated 100,000 bpd was stolen in Q1 2013 alone, according to Chatham House data cited by Agha.

Countless factions are to blame according to local press, and as ethnic tensions between groups rise, so do pipeline attacks, he said.

Agha advised that besides helping on the security front, the Government may need to reassess policy. “There might also be a need to water down the anti-corruption drive. The resultant peace might well provide a window for oil companies and the Government to ensure investment starts flowing into oil infrastructure,” he said.

S&P meanwhile noted that on the fiscal front, the Nigerian National Petroleum Corporation (NNPC) is considering alternative funding models over the next few years. “We understand it plans to clear its arrears this year—about $6 billion [1.5 per cent of GDP] accumulated in 2015—with its international oil companies’ joint venture partners. This financing strategy, if passed by the authorities, involves charging the federal escrow account as part of cost of production to clear the arrears to international oil companies,” it said.

www.bankerafrica.com

page 24-28 Country Focus-Nigeria 038.indd 26

25/09/2016 16:02

cont. from page 25

However it does include the beginnings of percentage change across the of oil price decline, and offers a window four factors. into the different banks’ positions, Zenith Bank came second in both strengths and weaknesses before the categories, with a seven per cent decline onslaught of this year’s challenges. in assets and six per cent decline in As BCA Research noted, several liabilities coming out to $193.6 million were already in a fragile position last in revenue and $49.4 million in net year. “Banks are under pressure from profit for 2015, or a 12 per cent and 10 rising bad loans. The non-oil corporate per cent drop, respectively. sector in Nigeria entered the 2014-15 Several strong banks suffered downturn with a significantly weaker significant setbacks in 2015, most notably balance sheet than it did during the Ecobank Nigeria, the pan-African 2008-09 crisis,” Pramanik said, noting bank’s largest subsidiary. Ecobank’s that the interest-coverage ratio of the assets dropped 91 per cent compared corporate sector had declined from to 2014, coming out to $96.98 million. four in 2008 to two at the end of 2014, Its liabilities were comparatively more according to the IMF. stable, with a 15 per cent decline year“Weaker balance sheets are making on-year, but overall its net profit took a firms more vulnerable in this downturn, 209 per cent hit at $120 million for the and since they make up 80 per cent of year—putting it 10th in the 'Best Bank' total bank loans, odds are that banks’ ranking and ninth in 'Fastest-growing'.

NPLs will go up significantly from the current 5.3 per CHART 5 cent,” he said.

Depleted Income And Savings All but one of our Has Caused Bank Deposits To Shrink included institutions, Ann% Access Bank, had assets NIGERIA: Chg BANK DEPOSITS* decline from 2014 to 2015 IN REAL TERMS** (Access managed four per 20 cent growth). On net profit, Access leapt 20 per cent, 15 with only United Bank for Africa (UBA) also in 10 the green at one per cent growth. In liabilities, Access 5 Bank was again one of two that saw an increase—two per cent for Access and 0 11 per cent for First City Monument Bank (though -5 FCMB suffered a 151 per -6% cent drop in net profit).

-10 Overall, this put Access Bank at the top of our -15 ranking for ‘Best Bank’—a measurement of the dollar 2010 2012 2014 2016 size increase in the above *DEMAND, TIME, SAVINGS, FOREIGN CURRENCY AND GOVERNMENT factors as well as revenue— DEPOSITS; SHOWN AS A 3-MONTH MOVING AVERAGE **DEFLATED BY HEADLINE CPI and ‘Fastest-growing © BCA Research 2016 ©BCA Bank’, the measurement Research 2016

Guaranty Trust Bank (GTBank) fared relatively well, ending 2015 with just a nine and 10 per cent decline in assets and liabilities, respectively, and an overall net profit of $52.4 million that was just 11 per cent behind 2014 numbers. Overall, First Bank of Nigeria (FBN) took in the largest net profit by dollar amount ($424.4 million) but actually suffered the largest drop yearon-year of any of the included banks at 551 per cent.

Moody’s assigned first-time ratings to four of the above banks on 15 September, with Zenith, GTBank and UBA all receiving B1 local-currency deposit and issue ratings with a stable outlook, and FBN receiving B2 ratings on the same, with a negative outlook. Moody’s noted that Zenith and GTBank’s ratings rested on each bank’s standalone strength, including robust lossabsorbing buffers, low levels of non-performing loans and their resilient liquidity Ann% profiles. UBA, meanwhile, Chg was underpinned primarily by the expectation of 20 Government support as it’s a systemically important bank.

15 Similarly, FBN is systemically important and could expect 10 intervention—but is dragged down by a weak loan book 5 and high provisioning costs.

Skye Bank was not included in our ranking due 0 to the unavailability of its 2015 Annual Report and the -5 CBN’s ongoing oversight of its operations. Stanbic IBTC and -10 Bank of Industry were also not included for lack of data, -15 but were each reaffirmed in their credit ratings by Fitch on 5 August: Stanbic IBTC Bank at ‘AAA’ national longterm ratings and Bank of Industry at ‘AA+’. cont. overleaf

www.bankerafrica.com

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27 25/09/2016 16:32

COUNTRY FOCUS NIGERIA

cont. from page 27

Central Bank relaxes strict money transfer rule

Dozens of mobile and electronic international money transfer operators were suddenly barred by the CBN (CREDIT: BEN LYON/FLICKR).

Following outcries over CBN’s 2 August decision to limit money transfer operators (MTOs) to just three companies—Western Union, MoneyGram and Ria—the Central Bank allowed 11 more MTOs back into the market. Though that still limits many businesses from engaging in the Nigerian remittance market, estimated to be $21 billion annually, it alleviates a significant amount of pressure from concerned consumers, operators and banks.

The MTO limit was announced shortly after CBN’s decision to float the naira, seen as part of an effort to stem steep devaluation and stabilise the volatile foreign exchange market.

WorldRemit, a digital remittance service, was one MTO let back into

28

the fold. “We commend the Central Bank of Nigeria for reaffirming the country’s commitment to building an enabling environment and levelplaying field for international money transfer services to Nigeria. Increased competition will help to bring the estimated 50 per cent of remittances to Nigeria that currently go through unregulated, informal networks into formal networks channelled through licensed IMTOs,” Ismail Ahmed, Founder and CEO of WorldRemit, said.

“We’re grateful to the many Nigerians both at home and in the diaspora that supported our call for money transfers to be restored.

A competitive remittance market provides Nigerians with greater convenience and better pricing,” he added.

The Nigerian Association of Chambers of Commerce and Industry Mines and Agriculture (NACCIMA) also applauded the CBN’s partial turnaround.

“We believe that this policy decision is a step in the right direction in ensuring that remittances from Nigerians in the diaspora remain a viable source of foreign exchange for the Nigerian economy,” the organisation said in a statement.

“However, we would like to counsel that the Central Bank of Nigeria reconsiders its stance in its earlier press release…where it stated as follows: [MTOs] are required to remit foreign currency to their respective agent banks in Nigeria for disbursement in Naira to the beneficiaries while the foreign currency proceeds are to be sold to Bureaux De Change operators, for onward retail to end users’,” NACCIMA continued.

“It is our view that this policy will put price control and determination in a few hands and create an enabling environment for sharp practices within the forex parallel market.

We counsel that beneficiaries of foreign currency proceeds be allowed to determine when they sell their proceeds and at what rate. This will create a situation of multiple supplier/ sellers to meet the existing demand in the parallel market and relieve the pressure on the inter-bank window.”

The Association expressed concern that the policy would be a disincentive for consumers receiving remittances, which may lead them to consider ‘alternatives’ that could lead to the continued increase in foreign exchange prices.

www.bankerafrica.com

page 24-28 Country Focus-Nigeria 038.indd 28

22/09/2016 11:19

BA bleed guide.indd 1

22/09/2016 14:42

POLICY SPOTLIGHT

‘To move forward and up’ Between a bank failure and difficult global conditions, Mauritius nevertheless emerged strong from the last fiscal year—now its top officials shed light on plans for the future

O

n 29 July, Pravind Jugnauth, Minister of Finance and Economic Development, did not just present Mauritius’ 2016/2017 Budget, but also its plans to emerge as a country “on top” in trade, manufacturing and financial services for the region.

Jugnauth began by noting how the global context has influenced budget goals. “The background is indeed fraught with uncertainty, adversity and tough challenges, while the expectations are many and the aspirations are high,” he said.

“If we stay the course, the confluence of adversities and challenges will most certainly pull us back. If we decide on a new course, we can change things for the better and come on top,” he continued. “The choice is clear. Today we choose to come out on top—to move forward and up.”

Despite global headwinds, Mauritius has fared solidly over the past year.

The Minister said that inflation at just 0.9 per cent for 2015/16 and

30

The Bank of Mauritius led the sector through a bank’s failure last year (CREDIT: CHUCKAS MCFLY/FLICKR).

www.bankerafrica.com

page 30-32 Policy Spotlight 038.indd 30

22/09/2016 14:16

unemployment at 7.6 per cent in Q1 2016, more than a percentage point lower than a year prior. He also said that overall balance of payments in the last year was in surplus of MUR 20 billion, with the current account deficit as a ratio of GDP, at 4.6 per cent.

The country’s official reserves are also ahead of international standards, from 6.2 months of imports in December 2014 to 8.5 months in June 2016. The budget deficit for the financial year 2015/16 is about 3.5 per cent.

However, Jugnauth said that Mauritius cannot rely on its solid fiscal position in the year ahead. “There are many reasons to think that the pressures of global trends on our economy will become more acute. The Brexit event is another staunch reminder of this reality,” he said. “We must therefore lift up the growth path before the three to 3.5 per cent growth trend of recent years becomes the ‘new normal’.

How will Mauritius achieve this?

Jugnauth presented a multi-pronged approach to fueling key sectors and “fostering a wave of modern entrepreneurs” through SME growth, including a blend of trade support, tax holidays and investment mobilisation.

Jugnauth said that he would suspend the payment of trade fees for licences of MUR 5,000 and below, for a period of three years for all SMEs, except those engaged in activities such as gambling, and sales of liquor and cigarettes. He claimed this measure will benefit some 75,000 existing businesses.

Other incentives included an eightyear tax holiday for businesses that register with the country’s Small and Medium Enterprises Development Authority (SMEDA) while existing businesses with a turnover of less than MUR 10 million will benefit from a four-year tax holiday. Financial companies that fall under ‘global headquarters administration licence’, as well as high-net worth individuals

In a small open economy like Mauritius, we have an additional but very tricky regulatory challenge—to get the balance right such that the solution does not become part of a bigger problem.

— Rameswurlall Basant Roi G.C.S.K., Governor, Bank of Mauritius

Pravind Jugnauth, Minister of Finance and Economic Development, has called for a new era of growth for Mauritius (CREDIT: MICHAEL SPILOTRO, IMF/FLICKR).

investing at least $25 million into the country, will each benefit from a fiveyear tax reprieve.

These breaks will run alongside a number of investment schemes, including a national SME incubator programme, an SME Venture Capital Fund and several fund for sectorspecific support, such as a MUR 7 million programme for bee-keepers.

Jugnauth also highlighted the financial sector’s need to adapt to global realities. He announced plans for a new Mauritius International Derivatives & Commodities Exchange (MINDEX) with a MUR 50 million initial investment and said that the Bank of Mauritius Act and Banking Act will be reviewed. Besides the tax holidays for headquartered companies he announced that asset and fund managers, treasury management centres, international laws firms, investment banks and overseas family corporations could all be eligible for five-year tax holidays.

In a statement following the budget, advisory group Axis said that the budget plan was effectively a no-tax budget with VAT and Corporate tax remaining at 15 per cent.

“Although there were some fears of the introduction of capital gains tax, it was a relief that the status quo was maintained. In order to expedite tax appeal cases exceeding MUR 10 million, an Alternative Dispute Resolution mechanism at the Mauritius Revenue Authority will be set-up,” the statement read. “The combination of the fiscal and non-fiscal measures will ensure that Mauritius remain a very competitive jurisdiction and will continue to appeal to international investors and clients.”

ABAX, a corporate advisory, also released an opinion on the budget.

“W e we l come t h e re n e w e d commitment of the government to ensure Mauritius continues to craft the right ingredients for investment,” it said.

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31 25/09/2016 16:07

POLICY SPOTLIGHT

“We are relieved that there have been no drastic fiscal changes that could have sent the wrong signals to business.

These are positive steps that underpin the strength of Mauritius as a place where investors are confident to invest.

“It is our view, however, that the government should come up with additional measures to further integrate Mauritius to the African continent and attract international businesses to use Mauritius as a preferred international financial centre. Also, there is even more scope today to do business in Mauritius and from Mauritius rather than merely through Mauritius.”

TIGHTENING BANKING REGULATIONS On the same day as the budget was revealed, Bank of Mauritius Governor Rameswurlall Basant Roi, G.C.S.K., addressed regulatory concerns at the International Monetary Fund (IMF) Africa Training Institute in Ebène, Mauritius.

“Effective banking supervision is an evolving discipline. Free flows of capital in a globalised world marked by all kinds of disruptions, unleashed by economic and non-economic forces, the quests for high returns by investors and quick profits by speculators, fraudulent practices, excessive risk-taking and violent economic cycles, amongst others, have made regulation and supervision of financial institutions an unprecedentedly challenging task. The regulator’s job has become increasingly complex and demanding in terms of skills and clairvoyance, more so after the August 2007 international financial crisis,” he said after going in-depth on the regulatory changes that the bank has been through since his first turn as Governor in 2000.

“Last year, the Bank of Mauritius revoked the banking license of a seven-year old bank that was part of one of the biggest corporate bodies

32

in the country. It was a systemically important Group of companies. Poor corporate governance, fraudulent practices, related party transactions, poor asset quality, capital deficiency, liquidity crisis, amongst so many other factors, brought down the bank,” he said, referring to the Bank’s intervention in Bramer Bank following an alleged Ponzi scheme of over $693 million. The institution formed National Commercial Bank in its wake to absorb remaining assets.

“This bank failure provided us with invaluable lessons that regulation and supervision of financial institutions cannot be taken lightly. No bank forming part of a broader group of companies should ever be overseen by the regulator in isolation from the other related entities. Regulatory framework should indispensably allow for consolidated supervision. Those who fail to learn from history are doomed to repeat it. The economic and social costs of policy errors are enormous and, indeed, very painful,” Roi said.

“In a small open economy like Mauritius, we have an additional but very tricky regulatory challenge—to get the balance right such that the solution does not become part of a bigger problem. In the wake of the 2007 financial crisis, effective regulation and supervision of financial institutions was brought back to the table with an elevated sense of seriousness. Basel III gained greater importance worldwide. This awakening has brought with it several new challenges for regulatory authorities, not only in Sub Saharan African countries but also the world over. Digital technology has made far-reaching inroads in the financial industry. The inherent risks associated with digital technology in banking and finance cannot be understated. Regulatory authorities in most parts of the world face a formidable task: to get the right kind of skills for a job that needs to be done right now! One of the most obvious challenges is capacity building,” he concluded.

FAST FACTS Mauritius is trying to promote ‘a new normal’ of economic activity, says Minister of Finance and Economic Development Pravind Jugnauth. Here’s how: Ü Ü Ü Ü Ü

rade fees for licences of MUR 5,000 and below are suspended for T three years Eight-year tax holiday for businesses registered with the Small and

Medium Enterprises Development Authority (SMEDA) and financial companies with ‘global

headquarters administration licences Five-year tax holidays for several other financial company classifications

and high-net worth individuals investing in the country The SME Venture Capital Fund, a merger of existing funds with a new

capital base of MUR 500 million

Source: Pravind Jugnauth, Budget Speech 2016/17

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page 30-32 Policy Spotlight 038.indd 32

22/09/2016 14:16

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22/09/2016 14:46

TRAILBLAZERS

Cheick Modibo Diarra speaking at a previous ALN conference.

The ‘final frontier’ of investment Ahead of the Africa Legal Network’s third conference in Dubai, UAE, Chairman Cheick Modibo Diarra discusses the challenges and unique opportunities that Africa presents to global investors

34 page 34-36 Trailblazers038.indd 34

www.bankerafrica.com

22/09/2016 12:27

F

rom NASA astrophysicist to UNESCO Goodwill Ambassador, Microsoft Africa Chairman to Prime Minister of Mali, Cheick Modibo Diarra has worn many hats, yet often worked towards a common goal—development of Africa’s abundant resources, whether they be agricultural, industrial or most often, human.

“Even though global growth has slowed down, I believe that Africa is still leading…We have a new generation of Africans that are well-educated and well-trained,” Diarra recently told Banker Africa.

“We have a very dynamic continent in Africa. Right now the whole world is experiencing security issues, and Africa is not spared from that. However, tremendous effort is going on across borders,” he said. Diarra knows firsthand what that effort entails, having stepped into the Prime Minister role in post-coup Mali in 2011 to lead the country through political transition. The position came after years of work on focused on integrating African resources and developing human capital, whether with Microsoft or on the World Banksupported African Virtual University, which Diarra also helped found.

Before all this, Diarra was a student from Nioro, a mid-sized town in Western Mali, that travelled first to France for university and later the United States’ Howard University for a Masters’ in aerospace engineering and a PhD in mechanical engineering. After a stint teaching there, he moved on to work with the US National Aeronautics and Space Administration (NASA) on several programmes and ultimately become the director of education and public outreach for NASA’s Mars Exploration programme.

“I was exposed then to different forms of policy regarding the space programme and how the space agency works with the private sector in the US and how it works

with international operations as well,” Diarra said. This cooperation between public and private sector interests guided several more missions when Diarra returned to Mali to improve water management and solar energy projects.

Today Diarra brings together these experiences to raise the profile of the Africa Legal Network (ALN), an extensive Africa-wide web of legal professionals that tasks itself with

We have a lot of young people who are developing a lot of apps, and Africa, when it comes to technology, it is truly the last frontier.

–C heick Modibo Diarra, Chairman of the Africa Legal Network

enhancing services and easing the way for the steadily growing corporate and investor interest in Africa. Diarra sat down to speak with Banker Africa about the ALN’s goals and his own views on where African investment is going.

How have your personal and professional experiences shaped your vision for business and development in Africa?

It is actually this diversified background that was of interest for the Africa Legal Network [ALN] when they asked me to chair the organisation and help it get not only the visibility that it needs, but also to focus on its purpose of becoming an organisation that can allow a business person to work seamlessly across many African countries. If you look at most African governments, the trend is towards strengthening regional organisations, because when it comes

to infrastructure, energy production, mining, education—any kind of thing— people are realising that working in a regional manner will give them more bang for their buck. Because of that, people who come [to invest or do business] whether they are within or outside of Africa—they will need a structure like Africa Legal Network that will give them all the expertise to be able to look after their business.

What do you think are the main challenges that these investors see, and how does an organisation such as ALN help in that area?

Well, obviously the biggest challenge that we are trying to alleviate for our customers is that on the continent you have several different types of laws. If you go into the French-speaking Africa, you have the Napoleon law, and then you have the common law in the English-speaking areas; then if you go into the Portuguesespeaking area, it is again a whole different set of laws. ALN’s experienced lawyers bring to bear their experiences in many, many areas—whether in energy, mining, businesses, banking, hospitality—you know, in the Group, we have people that have expertise in all of these areas. We can navigate easily across different types of laws across the continent.

But the biggest challenge is still to actually be able to work together as a single entity while at the same time remaining independent law firms. We are working very hard at achieving that.

Do you think that investor or business interest in Africa has changed significantly with recent market developments, such as lower growth expectations for the continent and lower oil prices?

The shift I’m seeing is that there are more and more people sending pathcont. overleaf

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TRAILBLAZERS

cont. from page 35

finding missions, because there is a sector in Africa that is booming right now, and that is IT innovation. We have a lot of young people who are developing a lot of apps, and Africa, when it comes to technology, it is truly the last frontier. Whether it is the transfer of information regarding agricultural issues, the transfer of money or transfer of knowledge, there are all kinds of apps that can sustain business and address challenges; [youth] are working on that across the continent and alot of investors are actually paying more and more attention. So that is the main trend I see.

Of course, when it comes to extractive industries such as oil, a lot of countries’ expected revenues have been downsized…we hope that very soon that is going to stabilise. But that has actually been balanced by people’s interest in agriculture and in other areas such as mining, which is still growing.

When the economy is growing the way it is now, areas like gold prices and so forth have the tendency to counterbalance what we see in the oil prices.

On the flip side of that—do you see sectors that are underutilised or under-appreciated, that you would like to see more innovation and investment into?

Yes indeed. I think that the areas still really need to have tremendous amount of investment and development in Africa are agriculture—that is number one—and healthcare. Having modern and sophisticated clinics across the continent is a need. Of course the third area, something we have been grappling with since the days of independence, is the production of energy, because the lack of energy has impeded the development of this continent. We have a lot of opportunities when it comes to renewable energy and we have a great capability to produce it.

36 page 34-36 Trailblazers038.indd 36

Africa is still leading in growth, Diarra says.

So energy, agriculture, and healthcare—those are three areas that still need a lot of work to be done.

Of course we still continue with the education area, because as more and more investors come, and more and more companies are trying to work in Africa, we need to develop more and more human resources. But that has been going on now for the last 10 years and is still going on.

The ALN is holding its conference in Dubai again this year. Why is the link between the Gulf and Africa important, and how does that compare to other regions?

The thing is, we’re doing it in Dubai but there are a lot of investors coming from all regions of the world. In the last three conferences we have done so far, people from Singapore have come, people from Europe. The reason we have remained in the Gulf is because of the dynamic of the Gulf itself in terms of investment in Africa.

If you look at the Dubai Chamber of Commerce annual meetings, where they showcase Africa every year, or diplomatic efforts that the United Arab

Emirates are deploying to Africa, they are trying to understand the areas that need investment and how they can work with Africans. This is an effort for the benefit of the two regions and that’s why we’re calling the conference ‘Bridging the Gulf’, because whenever there is a sustained, visible effort towards investing in Africa and showcasing opportunities in Africa, it is our responsibility as an African organisation to come in and help to give this more visibility. We can use that opportunity as well to help people see what an organisation like ALN could actually do from both sides of that bridge.

ALN’s annual conference will take place at the Park Hyatt in Dubai, UAE, on 5-6 October 2016 with panels on M&A, private equity, risk management, and sector focus in FMCG, energy, logistics, infrastructure and real estate.

For more information on the conference, please visit http:// www.africalegalnetwork.com/ aln2016/.

www.bankerafrica.com

25/09/2016 16:11

SECTOR FOCUS SME & MICROFINANCE

Leading the way Whether developing an Islamic banking framework or innovating new ways to reach retail consumers, Bank of Khartoum has often pioneered the market—and now it looks further afield than Sudan, says Kashif Mohammed Naeem, EVP & Group Head-Retail, SME & Microfinance

Kashif Mohammed Naeem

S

udan is a unique and historic Islamic banking market. What do you think other markets could learn from you, especially from a retail banking perspective?

Something unique about Sudan is that it is the only country in Africa and second country in the world to offer 100 per cent Shari’ah-compliant banking. Sudan’s Islamic banking offers a wealth of experience and knowledge, locally and internationally.

In Sudan, Islamic banking was first launched in the seventies and was offered as an alternative to conventional banking that continued through the late eighties. Then the Government decided to change the whole banking system to Islamic banking, in line with the Islamic orientation of the entire country. The decision took effect in 1991 when the Bank of Sudan issued the Banking Business (Organisation) Act, which stated that all banking finance transactions for all banks in Sudan must be managed according

to Shari’ah law. A few decades later, Sudan’s contribution to establishing a thorough Islamic banking framework is well-respected and recognised. We at Bank of Khartoum (BOK) are proud to have won many accolades for our own contribution to strengthening the Islamic banking system in the regional and globally.

US sanctions on Sudan have negatively impacted efforts to promote the Sudanese experience, but we at BOK are playing our due role in further expanding Islamic banking and cont. overleaf

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SECTOR FOCUS SME & MICROFINANCE

cont. on page 37

knowledge sharing. We have organised two very successful conferences, in 2014 and 2016, as IFIF [International Forum on Islamic Finance], where we had delegates from around the globe coming to Khartoum. A conference such as this helps put Sudan on the world map of Islamic finance. We are continuing with our efforts and the next edition of IFIF 2017 is scheduled for February 2017.

Over the years, we have launched many first-time retail products and services for Sudan, and sometimes even Africa, such as an e-account/paperless account opening. Recently the same concept was adopted by a multinational bank and they have launched a similar product in a few countries.

One of our subsidiaries, dealing in Islamic microfinance (IRADA Microfinance) got a contract in Uganda to convert one of the MF institutes from conventional to Islamic banking.

We are open to offer our services as partners and consultants to spread Islamic banking in Africa.

Since we last spoke, how have financial inclusion efforts by BOK changed or grown?

Bank of Khartoum is trying its best to bring the unbanked into banking channels. As you know, Africa and Sudan are largely unbanked. We are aggressively opening new branches and installing more cash deposit machines and ATMs. We are also relying on our e-channels to offer more products and services for our clients. Even our account opening is now done electronically. We have hired over 150 sales officers and equipped them with tablets and apps to ease account opening. We fill customer information on the tab, scan the supporting documents and send the full ‘KYC’ set electronically to the Operations Department, who can open the account within 10 minutes.

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We are in business of providing full solutions. First we started offering e-accounts as I mentioned, then we worked on our mobile banking application [mBOK] and upgraded it to offer services such as free fund transfers, bill payments, electricity purchases, customs payments, cash deposit and withdrawal throughout branches, ATMS or any authorised agent. The idea is to convince potential customers that opening an account is not a difficult, cumbersome process and can be done easily.

As inclusion continues to grow, what do you see as some of the final, or most long-standing, challenges in bringing people into the banking fold?

Challenges that we face as an Islamic bank are related to Shari’ah. There are a lot of products and services we would like to offer to our clients but

In this world, the tech-savvy digital consumer is ever ready to adopt anything that provides greater convenience – Kashif Mohammed Naeem

they are not approved by Shari’ah.

While the same products and services are available in other Islamic countries and are offered by Islamic banks, our Shari’ah is known to be the strictest and doesn’t follow the Fatwa of other countries, rather only what our most esteemed scholars allow.

Furthermore, Sudan has been under sanctions for almost two decades now.

Due to this, foreign banks do not come to Sudan or even keep correspondent banking relationships.

Performing simple international transfers or transactions such as paying school fees, buying medicines or buying equipment from abroad becomes a ‘project’. The correspondent banking network for Sudan has been on decline ever since French Bank BNP Paribas got hit with an $8.9 billon [in 2014].

Most of the European correspondent banks are closing relationship with Sudanese banks. Recently, however, a few positive articles have been written internationally, suggesting that the US roll back sanctions on Sudan— this is a positive sign for a country with huge potential.

How will the 92.5 per cent acquisition of Etisalat Canar contribute to retail banking strategy?

In August 2016, BOK successfully completed purchase of share of Emirates Telecommunications Group Company PJSC [Etisalat Group] in Canar Telecommunication Company Limited Sudan [Canar], the shares which represents 92.3 per cent of the Company’s ownership have been acquired by the bank after securing all regulatory approvals from the governing authorities.

The integral association between technological development in the banking sector and its close link with the telecommunications sector in this day and age made this investment a strategic step for the bank. The significance of the Canar acquisition lies in what Canar represents—a successful investment with great expected potential. We have plans in place to take this acquisition forward and you will hear soon about our further enhancement on the e-channels side, offering bundle products for BOK and Canar customers.

Some work is required and I cannot go into detail at this stage as it is a ‘work in progress’, but hopefully you will hear about our offerings soon.

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25/09/2016 16:14

How does being a Shari’ahcompliant bank inform or influence your strategies, from financial inclusion and retail products to banking technology?

Conventional banks have intensely invested in technologies that have transformed the way they conduct their banking services and disseminate their products. They have reached a level where customers are able to execute financial and non-financial transactions online, from any location, with the help of internet and mobile banking. With social media, digital consumers prefer doing their own research before making a decision on the best-suited product or service offered by their banks. They can interact online or set up a meeting with their relationship managers via unified communications technology. In view of this all, a growing number of Islamic banks are offering customer service through digital channels as well.

However in some jurisdictions where these Islamic banks operate, a majority of the customers still seem to prefer the brick and mortar structure than any other channels. While basic services like account inquiry and transfers are offered online, interactive and advanced services are yet to be offered through internet and mobile banking. The Islamic finance industry’s growth has critically been spearheaded by innovative product developments that have enabled the sector’s offerings to include a diverse range of financial products suited to meet the evolving market needs.

The once nascent segment that focused mainly on deposit-taking and retail financing schemes until the mid-1990s has now evolved into an integrated financial system that provides ethical financial solutions across diverse product areas including banking, equity markets, securities, debt markets and insurance services. In recent times, the Islamic finance industry’s scope

We are in business of providing full solutions, Kashif Mohammed Naeem, EVP & Group Head-Retail, SME & Microfinance at the Bank of Khartoum, said.

has widened further to support green, ethical and environmentally friendly development projects; to enable international risk management through Shari’ah-compliant hedging instruments; to spearhead the bourgeoning international Halal trade business; to fund international infrastructure projects; and also to enhance liquidity management and capitalisation of Islamic financial institutions in line with newer regulatory requirements such as the Basel III standards.

In this world, the tech-savvy digital consumer is ever ready to adopt anything that provides greater convenience.

Internet usage is improving daily, giving the rise to new devices and gadgets.

This is an opportune time to tap these technological advances and fulfil the ever increasing needs of the current digital generation.

What are some of your goals for the retail and microfinance units over the next few years? How do you plan to achieve these?

Our goals include continuing to be aggressive in customer acquisition and deposit mobilisation; offering more e-banking solutions; further expanding

branch and ATM network; focusing on SME financing; enhancing our presence on social media, offering services like cash pick-up and drop for retail and SME customers; e-commerce initiatives and many others.

For microfinance, we were working through IRADA Microfinance, a recently fully-independent microfinance subsidiary, where BOK is an 80 per cent shareholder and the Islamic Development Bank holds the remaining 20 per cent. We are known for our work in microfinance and have started to offer consultancy services within Africa as a ‘phase one’ to convert any institute from conventional to Islamic.

We are committed to IRADA becoming one of the top Islamic microfinance institutions in the region.

Overall for the bank, we recently received a licence from the Central Bank of the UAE to open our first branch in the country, in line with the principles of Shari’ah law. This is going to be our second international branch, after we opened our first branch in Bahrain last year. We have plans for further expansion internationally and looking at Africa as out next target market to spread Islamic banking.

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39 25/09/2016 16:14

SECTOR FOCUS CONSUMER BANKING

Even people with micro businesses and small savings can benefit from bank accounts, says AfDB’s Mohamed Khalif (CREDIT: SARINE ARSLANIAN/SHUTTERSTOCK).

Inclusion, finance, then growth Mohamed Khalif, Manager, Financial Intermediation at African Development Bank (AfDB) spoke with London Bureau Chief Isla MacFarlane at the Africa Financial Services Investment Conference (ASFIC) in London, England

W

hat do you see as the primary reasons for persistently high rates of unbanked citizens in many African countries?

There are many reasons. One is the infrastructure—many Africans live in rural areas. It is costly for the individual as well, because banks do charge, and so it’s not always practical from a banker’s perspective [to go for unbanked citizens].

Secondly, there is this perception that the poor do not actually need banking,

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which is an absolutely wrong idea, because they do. The more unbanked people that you bring into the banking system, the more profit you actually make, the more savings you attract, the more will be recycled into the economy.

Therefore, it is very, very beneficial to the growth of the economy.

You said it is really good for the economy—so what does a citizen get out of having a bank account? What is the advantage for them?

When you do not have a bank account,

if you have meagre savings, you are going to put them under the mattress.

They can simply be stolen, even by rats.

So first, it gives the poor individual the security and safety to put their meagre resources into a bank. They might even add interest on it, then there is marginal growth in terms of their deposits.

So, security, growth in their money, and perhaps last but not least, the banking system can find information in the patterns and spending habits of the individual, therefore allowing them to become a client that can be

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27/09/2016 16:08

SECTOR FOCUS

given a debt or a loan to grow their own business.

I read a statistic on Africa that said it has some of the highest mobile phone user penetration rates—you talk about people being unbanked because of the lack of infrastructure and roads; can technology now, can mobile banking, help people become banked?

That’s why mobile banking has become very popular in Africa. We just leaped forward in terms of banking. If you go to East Africa, mostly Tanzania, Uganda, Kenya, even Somalia, where there is no government—you have almost 80 per cent penetration rate in terms of mobile banking, because the infrastructure is not there. [Mobile banking] does not require roads, a bank branch, all you have to do is get a kiosk and send your money. It’s very simple, that’s why.

How can access to finance for SMEs be improved, for both small businesses and banking institutions?

Credit is very important for the economy. The more credit or loans that a small businesses gets, the more they can expand their manufacturing facilities or base. The number one constraint in access to finance is that SMEs are perceived to be high risk.

There is a lack of information because [SME owners] do not have the skill set required to do proper accounting, they do not attract technical managers who have a wealth of experience, and that creates from the bank’s perspective what we call a perception of risk, that SMEs are high risk and therefore it is very costly to do business with them.

Banks need to train their staff on how to assess and evaluate SMEs when they require finance.

Number two, even an advanced country such as America has a small business administration that actually supports and guarantees loans for SMEs. We need the support from national governments in addition to banks. We need to provide technical assistance or training to SMEs to do good bookkeeping, prepare a good business plan and do proper management—that starts grassroots with SMEs.

In your presentation [at AFSIC 2016] I was very interested to see that a very small amount of loans go to agribusiness.

I would have thought that would be very important—is this something that needs to be addressed?

My presentation focused on the private sector department of the [African Development] Bank.

However we do have a public sector department of the Bank, and that is where the agriculture department is actually based, and is the largest department. My presentation did not address that specifically. The Bank has got a huge portfolio in terms of agriculture [finance] supporting the governments and helping them address the challenges faced in agriculture.

On the other side, I think the private sector arm of the Bank should scale up the lending to agribusiness, particularly the value chain. In Africa we have raw materials; I’ll take the example of cashew nuts in Tanzania. The best quality in the world, and yet the cashew nuts get sent raw to India and are processed there, then sent back to Tanzania and we buy them. We need to assess our raw materials and put them into manufacturing [within Africa] so that it creates a value chain including technical expertise and technology,

training and job creation, and skill set capacity growth.

Is this a particular sector that you would really like to see nurtured and given more investment from the economy?

Absolutely. As you know, our President has come up with what is known as the ‘High Fives’ to power or light Africa, to feed Africa—which actually falls under agriculture—and of course the other important one is to industrialise Africa [the other two points of the ‘Fives’, laid out by President Akinwumi Adesina in his inauguration speech, are to integrate Africa and to improve quality of life]. Agricultural development actually hits two of the High Fives. One, you are feeding Africans by enhancing and providing finance to the value chain; two, you are industrialising Africa because you are increasing the manufacturing pace to reduce the imports of finished goods from outside countries, and increase the export of finished goods. This benefits foreign currency reserves as well, and helps grow the economy.

From a regulatory perspective, how can the atmosphere for private sector investment into Africa improve?

That’s a very interesting question, because what you really need to have is the conducive environment—a regulatory framework, ease of doing business, regulatory enforcement laws where creditors’ rights are enforced, fair and transparent judicial systems— we want to see all these things. It has to start from upstream, with the government—providing a conducive environment…Once these are taken care of, I am very sure that private investors will come and invest, and that will expand the base and attract further foreign investment.

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41 27/09/2016 16:08

TECHNOLOGY

Digital security is the key to future growth Mobile phones can be the authentication tokens of the future, writes Jolette Roodt, Analyst at Entersekt

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any African countries are undergoing what is called ‘financial deepening’—a process of increasing the banked population, improving market infrastructure, widening funding access, and diversifying investment options.

According to Bernhard Kotanko and Jason Ekberg of the Nikkei Asian Review, efficient and deep financial markets are a prerequisite for macroeconomic growth and prosperity. Moody’s also predicts that the fast growth of mobile banking across Africa, and the accompanying increase in access to financial services, will boost economic growth and create opportunities for banks to expand across the continent.

A large proportion of the African populace nevertheless remains unbanked. Penetration is as low as 36 per cent in some of the larger economies, according to KPMG. Commercial bank branches and ATMs are expensive to establish and maintain, and thus not well suited to the large and widely dispersed populations in many African countries. To bridge this gap, banks have started to explore alternative operating models, one of which is mobile payments.

42 page 42-43 Tech 038.indd 42

Digital functionality, especially with mobile, offers banks a great opportunity to expand their client base, says Jolette Roodt.

The emergence of mobile technology and the rapid spread of affordable cellular communications throughout the continent have allowed for financial services to be provided to lower-income households that often reside in isolated rural locations.

According to our CEO at Entersekt, Schalk Nolte, “Mobile has become the de facto means of banking in many parts of Africa and, as mobile penetration increases, this is allowing banks to connect with more of the population than ever before, and to do so in a more targeted, personal way.”

Digital functionality therefore offers banks a great opportunity to expand their client base.

The trouble is that the security of the current offering of online and mobile banking services in Africa leaves much to be desired. A quick investigation that I conducted, which entailed clicking through several African banks’ websites and login pages, was an eye-opener in this regard.

(NOT) MOVING PAST THE PASSWORD As protection for internet banking, the majority of banks appear to rely on only the traditional username and

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27/09/2016 16:15

PIN/password combination, with no second factor, much less something out of band. Another outdated feature that cropped up often was so-called challenge questions, where users answer a preselected question in order to prove their identity. This approach is too easily overcome through simple sleuthing on social media.

Virtual keyboards for completing sensitive fields also seem to be a popular safety precaution, because as opposed to PC keyboards, they are trusted to be immune to keylogging.

However, some commercially available virtual keyboards have failed penetration testing, illustrating that this protection feature is not exactly hacker-proof.

One of the sampled banks states that it minimises risk for the users of its internet banking service by only allowing funds transfers to specific nominated accounts. So, if the fraudster is not among your nominated accounts, they cannot transfer anything to themselves even if they have your login credentials.

Yet it is also possible to nominate an account for a one-time transfer and then immediately request a deletion, which essentially defeats the purpose of the feature altogether.

This security strategy exemplifies the pivotal problem of digital banking technology: greater convenience brings greater risk. If a bank cannot fully protect its users’ data and transactions, there is only so much it can reasonably allow those users to do. Additional security measures, on the other hand, increase friction, negating the “on-the-go” appeal of new digital functionality.

Banks worldwide are joining the move to multi-factor authentication, which requires the user to present at least two of the three authentication factors (something you know, something you have, something you

are) before they can log into their remote banking account.

This means that passwords are increasingly being supplemented by a biometric authentication mechanism, such as a fingerprint, or a hardware token that generates a one-time password (OTP) the user has to enter.

Unfortunately, these tokens have met with considerable resistance recently.

Account takeover fraud has been around for a decade, but last month, the irrefutable ability of hackers to intercept and modify OTPs and thereby help themselves to transfers from unsuspecting users’ accounts finally led the US National Institute of Standards and Technology (NIST) to actively advise against using this authentication strategy from now on.

LEAVE THEM TO THEIR OWN DEVICES What, then, is the alternative? The answer lies in your hands—literally.

Instead of making their internet banking users walk around with a separate gadget, financial institutions are now looking at the mobile phone as a second factor of authentication— the secure token of the future, so to speak. It is something that we always have with us, something we trust, and something that uniquely identifies

Instead of making their internet banking users walk around with a separate gadget, financial institutions are now looking at the mobile phone as a second factor of authentication.

– Jolette Roodt

us. It can open up a wonderful world of new digital activities and engagements—if it is implemented securely. The mobile can serve as an out-of-band authentication mechanism when logging in on a PC, and, with technology like Entersekt’s, also on the phone itself. Dave Birch, director of Consult Hyperion, recently wrote in a blog that: “the focus for solving “identity problems” is shifting to the mobile device. Whether it is in payments, ticketing, inclusion or in straight identity applications, the mobile phone will be the mass market solution to the problems of recognition, relationships and reputation. We have said repeatedly that a model based on strong authentication against a local revocable token held in tamperresistant memory delivers the right platform.”

Mobile apps are even faster to use than internet banking, usually requiring only a PIN, if my investigation into African banks is anything to go on. Apps offer almost unlimited potential for making users’ lives easier, but also for exploitation. If sensitive data is stored or transmitted unencrypted by the app, the user pays for this convenience with loss of security. If the app is not backed by solid cryptography and regularly updated, it may become vulnerable to malware. In fact, it’s best to leave security matters to the experts.

It is clear to me that many of Africa’s banks need to improve their approach to digital security, whether they currently offer only Internet banking or have already broadened their channel offering to include mobile. Financial institutions need a security solution that will grow with them as they embrace mobile technology, so that they are able to keep offering customers more—responsibly.

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43 27/09/2016 16:15

TECHNOLOGY

Bank still favour fiat currencies, says SWIFT New research from the SWIFT Institute asks—will the financial community accept?

(CREDIT: MONTRI NIPITVITTAYA/SHUTTERSTOCK)

V

irtual currencies are unlikely to crowd out fiat currencies, according to the latest research by the SWIFT Institute.

The research, Virtual currencies: Media of exchange or speculative assets? was carried out by Dirk G. Baur, UWA Business School, KiHoon Hong, Hongik University College of Business in South Korea and Adrian D. Lee, University of Technology Sydney. Its primary finding was that the price impact of speculators in virtual currencies adversely affects their property as a medium of exchange and renders a crowding out of existing fiat currencies, such as the US dollar, unlikely.

The main currency of concern was Bitcoin, which took the world by storm and speculation since it first emerged in 2009.

When the currency first appeared, many openly wondered whether it would change the nature of currency, foreign exchange and banks’ roles. However this has so far proven not to be the case, as Bitcoin remains a more niche market currency.

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The SWIFT Institute said after empirical analysis that Bitcoin is mainly used as a speculative investment—an empirical analysis by the researchers of Bitcoin prices and user accounts, or ‘wallets’, found that this was its primary usage, rather than as a medium of exchange.

“Contrary to conventional wisdom, our research shows that fiat currencies crowd out Bitcoin, not the reverse, and that the design and size of the Bitcoin market deprives the currency of its intended use as a medium of exchange,” KiHoon Hong said. “What is also evident is that Bitcoin poses minimal risk to financial or monetary stability.

Despite this, if the acceptance of Bitcoin or other virtual currencies increases significantly on a global scale, it could have significant consequences on the relevance of monetary policy, as its decentralised and independent nature makes regulatory oversight difficult.”

The researchers also found that no correlation exists between Bitcoin and traditional asset classes.

Bitcoin returns are uncorrelated with traditional asset classes such as stocks, bonds and commodities, both in normal times and during periods of financial turmoil.

As Hong said, virtual currencies pose no immediate macro risk, but could threaten traditional monetary policy in the future because of its decentralised nature and independence from central banks, fiat currency links or advisory authority.

The paper suggested that fixing the price to fiat currency with an implicit government-backing could alleviate the problem of virtual currencies’ volatility and their current usage an investments rather than exchange tools.

“However, whilst a fixed price may solve one major problem it would not be consistent with the decentralised, libertarian and free-market designs of most virtual currencies. Regional currencies are an example of a virtual currency that is fixed to an existing currency but those types of alternative currencies are neither decentralised nor global,” the researchers stated.

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25/09/2016 16:20

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BA bleed guide.indd 1

23/08/2016 09:24

INVESTMENTS

Sino-Africa investment rising—as China looks on Japan’s sixth conference on African development recently took place amongst promises of billions of dollars of investment–as well as Chinese criticism of Japan’s strategy

J

apanese interest in Africa has steadily grown, with Prime Minister Shinzo Abe making the rounds on state visits to several African countries over the past few years and spearheading tradefriendly policy that has seen Japanese business into Africa blossom.

At the Japan’s Tokyo International Conference on African Development (TICAD VI) in Nairobi—the first TICAD ever held in Africa—Abe unveiled a $10 billion three-year infrastructure investment plan. Geared towards modernising electricity, power and urban transport, the plan is bound to sizably increase Japan’s presence on the continent.

Billions of dollars’ worth of Japanfunded projects will be implemented by the African Development Bank (AfDB), starting with investments into electricity generation that the Government said should increase capacity by 2,000 megawatts and reach three million households by 2022.

“It will be necessary to develop roads and ports. This must be nothing other than quality infrastructure. At the Group of 7 Summit, we were united in our determination in this regard,” Prime Minister Abe said, adding that this policy focus was previously detailed in the G7 Ise-Shima Principles for Promoting Quality Infrastructure Investment.

46

Japan Prime Minister Shinzo Abe speaking on universal healthcare during TICAD VI in Nairobi (CREDIT: DENIS MUKUNDI/WORLD BANK/FLICKR).

This year’s TICAD, organised by Japan External Trade organisation (JETRO) and the Kenya Investment Authority, primarily emphasised Africa’s investment potential for Japanese business. Akinwumi Adesina, President of the AfDB, said that “Africa is the place to invest” citing high annual GDP growth rates and significant private sector opportunities.

Kenyan Deputy President William Ruto also highlighted the private sector and power generation in particular.

“We know where the challenges are:

infrastructure, energy, industry, among others. These are the areas where private sector investment is needed,” he said.

Ruto commented on the AfDB’s ‘New Deal on Energy for Africa’, part of Adesina’s five-point agenda for the Bank that includes achieving universal electricity access by 2025. “Without electricity countries cannot go far,” he said, tying together the Bank’s objectives and Japan’s own goals of increased investment.

According to Japanese officials at the event, the country’s involvement in

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Africa will extend to knowledge sharing and training, such as a Japan-funded IMF programme to improve statistical reporting (more in boxout). Yet the first thing on most officials’ minds was addressing the trade balance between Japan and the continent—according to Adesina, Japanese exports to Africa declined from $10.4 billion in 2014 to $8.5 billion in 2015, while Africa’s exports to Japan also declined from $16.8 billion to $11.5 billion over the same period.

“To change this, we must strengthen greater partnerships between Japanese and African business communities.

Japan needs a future growing market, and that market is Africa. Japanese business community needs to work closely with African business leaders to tap into these huge economic opportunities in Africa,” he said.

However, Japan’s interest in Africa has drawn criticism from some corners.

Several observers have pointed to Japan’s particular interest in resourcerich countries, especially those with oil and gas. The loudest detractor is China, which has traditionally invested massively in Africa—also to mixed reactions. Yet China’s criticism of SinoAfrican relations is not about growing trade ties as much as it is about political implications.

Speaking at a media briefing a week after TICAD VI, China’s Foreign Ministry Spokesperson Hua Chunying said that the recent event in Nairobi was Japan’s attempt “to impose its wills on African countries to gain selfish interests and drive a wedge between China and African countries.”

Chunying also alleged that while TICAD is traditionally about economic development, Japanese officials attempted to politicise some of its panel discussions before pulling the topics due to attendees’ resistance.

“I have learnt that at the senior officials’ meeting held before the

TICAD summit, Japan went all out to direct the topic and outcome documents of the conference towards the Security Council reform and maritime security issues, which deviated from African development, the theme of the summit and led to strong dissatisfaction among African attendees. African countries all opposed politicising TICAD, dragging Asian issues into Africa, or allowing Japan to impose its will on Africa,” she said.

Japan has a long way to go before it catches up even remotely with China’s annual investment into Africa (estimated

by Wharton Africa Business Forum to be $26 billion in 2013). However

the countries’ similar interest in raw resources could be a source of future tension long before Japan actually eats into Chinese market share.

During her panel discussion, Liberia President Ellen Johnson Sirleaf did seem to address the Africa’s uneven trade balance with other countries, though she did not name them. Inter-African economic integration, she said, is necessary to move the continent from one that exports raw materials into one that adds value to its products. According to statistics from the AfDB, intraAfrican trade accounts for just 11 per cent ($110 billion) of the value of total African trade.

Japan and IMF launch African statistics programme On 29 August, just a day after TICAD VI ended, the International Monetary Fund (IMF) announced a three-year, Japan-funded capacity development project to improve the external sector statistics in Central and West Africa.

Introduced at the African Training Institute (ATI) in Mauritius, the opening workshop for the programme mid- and senior-level central bank officials of 17 Francophone beneficiary countries. Representatives of the Central Bank of West African States (BCEAO) and of the Bank of Central African States (BEAC) also participated in the workshop, the IMF said.

“Timely and high-quality external sector statistics are essential for policymakers at both the national and regional levels to better understand countries’ external positions, risks and vulnerabilities as a basis for designing and implementing sound macroeconomic policies. The project will provide the participants with opportunities to discuss common challenges, share experiences, and promote peer-to-peer learning, with a view to enhancing their external sector statistics,” Louis Marc Ducharme, Director of the IMF’s Statistics Department, said.

The project aims to enhance external sector statistics quality and close data gaps in key areas such as balance of payments statistics, the international investment position, and external debt statistics. While improvements in data reporting will help IMF surveillance of their beneficiary programmes, the Fund also said in a statement that the project will also facilitate greater regional economic integration in the CEMAC and the WAEMU regions.

Vikram Punchoo, Second Deputy Governor of the Bank of Mauritius, said, “Recently, Mauritius benefited also from a similar project. As a result, the Bank of Mauritius further improved the coverage of the balance of payments statistics and started the compilation of its international investment position and external debt. The project also facilitated the authorities’ subscription to the Special Data Dissemination Standard in 2012.”

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OUTLOOK

A time for change Africa’s oil and gas industry should take the opportunity to shift strategy, advises PricewaterhouseCoopers (PwC) in new review

It’s an opportune time for assessing regulations, says Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.

T

THE PRICE DECLINE

he decline in the global oil price has led to a reduced level of activity across the African continent and had an impact on countries that traditionally depend on oil and gas revenue, PwC said in its latest report.

48 page 48-49 Outlook038.indd 48

oil and gas investors to reform their regulatory, fiscal and licensing systems,” Bredenhann said.

He added that it is also important for the industry to look beyond the challenges caused by depressed prices and consider other forces that are shaping the industry. PwC’s Africa Oil & Gas Review 2016, published in August 2016, suggested that with the ongoing focus on cost reduction in the industry, the demand for innovation in technology will grow.

The review analysed the past 12 months of oil and gas activity in major and emerging markets throughout Africa, thus including Brent crude oil’s January 2016 low of $27.67 per barrel, a nearly 75 per cent drop since January 2014.

PwC said that this can be the ideal time for the industry to consider introducing training programmes to upskill levels and company standards in order to give local players a chance to enter the sector when activity picks up again.

As at the end of 2015, Africa has a proven natural gas base of 496.7 trillion cubic feet (Tcf), down marginally from 2014, with 90 per cent of the continent’s natural gas production still coming from Nigeria, Libya, Algeria and Egypt, according to PwC.

Despite the bleak landscape, the African continent still offers significant opportunities in the oil and gas sector, according to Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader.

“It is an opportune time for local governments that want to attract

The top challenges identified by organisations in the oil and gas industry have remained unchanged to those in previous years—uncertainty in regulatory frameworks, corruption/ ethics, poor physical infrastructure and a lack of skill resources.

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This year, there was also a significant rise in the challenge of meeting taxation requirements, as well as government relations. Regulatory uncertainty has remained the top challenge facing oil and gas businesses in Africa for the third year in a row, with 70 per cent of organisations citing it as one of the five biggest issues they experience.

For the first time since PwC’s series of annual reviews began in 2010, ‘government relations’ has hit the top six challenges. Around the continent, many organisations have experienced difficulty obtaining government sanction for new projects. This is proving to be extremely difficult in new hydrocarbon provinces, such as Mozambique, because governments do not fully comprehend the intricacies and scale of oil and gas projects.

“While we do believe that the oil price does have an impact on governments’ attitude and policies in the oil and gas space, we don’t think this is reason why companies have ranked government relations among the top six challenges,” Bredenhann told Banker Africa.

“Companies have come to realise that it is important to have an ally in the host governments to achieve their goals, whether it be licence renewals or working on shared value creation.

Close relations are also an opportunity to raise the government’s awareness and understanding for the challenges and risks of the oil industry when it comes to negotiations, particularly in new and emerging hydrocarbon provinces,” he said.

Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ businesses over the next three years, with respondents expecting the price to reach $52 by the end of 2016, $60 by the end of 2017, and $69 by the end of 2018. With little control over the price, businesses have focused on improving efficiency and driving down costs.

Regulatory compliance, at number two, remains a significant challenge for organisations this year. Foreign currency volatility is also rated a likely factor (number three) to impact business over the next three years. This year there have been large currency fluctuations— with the fallout from the Brexit vote precipitating some of the largest so far.

Fortunately, the industry remains optimistic, and many upstream players are focusing on exploration and finding new resources over the next three years, most likely in anticipation for an upturn in the oil price — Chris Bredenhann, PwC Africa Oil & Gas Advisory Leader “Regulations in African oil and gas countries have a tendency to change and create uncertainty.

Typical examples are higher taxation, higher free carried interest for host governments or greater local content demands in newly enacted laws and other change to regulations and policies,” Bredenhann said.

Asset management and optimisation remains a key strategic focus area for companies. “Fortunately, the industry remains optimistic, and many upstream players are focusing on exploration and finding new resources over the next three years, most likely in anticipation for an upturn in the oil price,” he added.

INVESTORS AND REGULATIONS Although there has been some recovery in the pricing environment, PwC’s report found that investor confidence

remains low as a significant recovery does not seem to be on the horizon, and oil market fundamentals are still down.

The low oil price has led operators to defer final investment decisions on over $300 billion of projects. Globally, mergers & acquisitions (M&A) activity has also dipped and PwC expects this trend will trend continue.

An uncertain regulatory framework is one of the main issues that organisations in the oil and gas industry are grappling with, the report found. In South Africa, there have been commitments to address concerns since 2015, and the intention of Government to separate regulations for oil & gas from the mining industry was communicated. However, the Minerals and Petroleum Resources Development Act (MPRDA) has not yet been changed and approved to reflect such modifications. In Tanzania, the regulatory environment remains uncertain despite the promulgation of the Petroleum Act in 2015. Furthermore, in Nigeria, the Government has failed to pass the Petroleum Industry Bill into law.

“The complexities and challenges facing Africa’s oil and gas industry have become daunting. As uncertain regulatory frameworks, taxation requirements and corruption continue to rank at the top of industry’s challenges in Africa, it also high time that governments make significant changes,” Bredenhann said.

“Furthermore, players must look at the current state of the industry as an opportunity to reinvent themselves.

Given the state of the industry, we think that stakeholders must also consider making changes to their business models. Change is the way to survive in the ‘new energy future’.

We need to see new business models, new products, new energy sources and new strategies to meet the new reality,” he concluded.

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49 25/09/2016 16:23

THE VIEW

PICTURE OF THE MONTH

On 25 August 2016, Geoffrey Siwo (L), a scientist at IBM Research Africa, demonstrated to IBM Chairman, President and CEO Ginni Rometty (R) how the newly opened lab in Johannesburg, South Africa is using cognitive, cloud computing, and the Internet of Things to address challenges in healthcare, urban ecosystems and to make new discoveries in the universe (CREDIT: IBM RESEARCH/FLICKR).

POLL

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

What is your outlook for Nigeria's banking sector?

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NEGATIVE IN THE SHORT-AND LONG-TERM

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OTHER

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