#39 - October 2016 by CPI Financial

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ISSUE 39 I OCTOBER 2016

ISSUE 39 A CPI Financial Publication

PLUS:

COUNTRY FOCUS

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Mozambique—picking up after debt

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TRAILBLAZERS

Zoona—inclusion through entrepreneurship

Dubai Technology and Media Free Zone Authority

A tale of two trends

TECHNOLOGY

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CONTENTS

ISSUE 39

Editor’s Letter Hello readers,

veryone is familiar with the phrase ‘Africa rising’. There are also its lesser-known cousins—‘Africa unlocking its potential’, or ‘new dawn for Africa’, etc. My personal favourite, at the top of a press release once: ‘Africa must adapt, or die’. Whew. Obviously, the 54 countries that make up Africa have very different societies, economies, histories and futures. When these countries largely experienced unprecedented growth in the first decade of the millennium, it was easier to ascribe the rising narrative to the whole continent. Nowadays, it’s just not that simple. Our cover story this month delves into the two dominant economic trends emerging— the new reality for commodities exporters, and the new opportunities for importers and more diversified economies—as well as other, smaller movements, with commentary from the World Bank, UNCTAD, and experts at McKinsey (pg. 20). The discussions at Africa Legal Network’s (ALN) third Dubai conference earlier this month also dwelled on the diverging paths of Africa’s major economies (pg. 46). Karim Anjarwalla, Managing Partner of Anjarwalla & Khanna and organisers for the ALN, summed it up nicely while speaking to Banker Africa—“we never really believed that the Africa story is as good as people thought, nor do we now believe it is as bad as people fear.” That is a sentiment people would probably like to hear in Mozambique, the subject of our country focus this month. Authorities are in the midst of renegotiating a programme with the IMF after undisclosed debt caused the Fund to freeze it earlier this year (pg. 28). Luckily, we spoke with Orlando Chongo, MD of Mozambique’s BancABC entity, about what it’s like operating in the country today, and what he expects for the future. Elsewhere this month, Attijariwafa made waves with its acquisition of Barclays Egypt. Moroccan banks have been steadily growing their international presence, with Attijariwafa leading the way through extensive operations in West Africa—this issue, we look at what that means for stability in the Moroccan economy and banking sector itself (pg. 48). Finally, exciting things happened in tech this month— our trailblazer talks P2P payments and entrepreneurship (pg. 30) and Volante discusses the cutting edge of financial messaging (pg. 40). 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: Will politics throw 7

Essential financial news from around the continent

10 Spotlight: Ethiopia HAPPENINGS 12 And the winners are…

The fourth annual West Africa Awards produced 10 wins across the region

13 Trumped-up charges, or governance

at work? South Africa’s Finance Minister called to court on fraud

OPINION 14 A challenging time for African trade

Vincent O’Brien of the International Chamber of Commerce on the global economy’s impact on trade finance

16 Is Africa the land of business

opportunity or pain? Leif M. Sjöblom, Professor of Financial Management at IMD University, discusses lingering business challenges on the continent

MARKETS 18 Reinsurers are ‘bullish’

Positive sentiments in the $8.3 billion market, according to a new survey

COVER STORY 20 A tale of two trends

The continent’s GDP growth has been revised down to its smallest output in years—but that’s not the full story

COUNTRY FOCUS: MOZAMBIQUE 26 ‘Positive disruptors’ in a hard economy

Orlando Chongo, MD of BancABC Mozambique, on growth in the national economy

28 Picking up where debt left off?

The IMF and Mozambique are renegotiating their lending agreement after hidden debt controversy

www.bankerafrica.com

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Ghana off track?

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CONTENTS

ISSUE 39

TRAILBLAZERS 30 Inclusion through entrepreneurship

Zoona, a Zambia-based fintech start-up, rethinking P2P payments

Chairman SALEH AL AKRABI

SECTOR FOCUS 34 Funding the gap

Michael Monari, CEO of Longitude Finance, on financing the small businesses no banks will touch

36 Building an empire

Anand Kapoor, Founder and CEO of Midcom Group, tells the story of one business’ growth to a conglomerate

TECHNOLOGY 40 It’s time to wake up and smell

the coffee Banks need to catch up with the competition on financial messaging, writes Mick Fennell, General Manager of Volante

42 Fintech and financial literacy

Cards & Payments East Africa landed in Nairobi to discuss how tech can improve banking services

POLICY SPOTLIGHT 44 In recession, Nigeria looks to SMEs

for Moroccan banks As banks move into international markets, credit risk may grow

THE VIEW 50 Photo and survey of the month

COVER PHOTO: A truck mechanic works at the port in Tema, Ghana (CREDIT: JONATHAN ERNST/WORLD BANK/FLICKR).

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SBM eyes the regional

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

stage

Publication

business South Africa’s small

COUNTRY FOCUS GT Bank Smart growth for

SME FINANCEchampions Reaching Africa’s

PLUS:

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COUNTRY FOCUS

Currency shocks in Nigeria

TRAILBLAZERS

The ‘final frontier’ of investment

TECHNOLOGY

Digital security is the key

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FOCUS

Mozambique— picking up after debt

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

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

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

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

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

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

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

Head of Contract Publishing & Business Development VINOD THANGOOR vinod@cpifinancial.net Tel: +971 4 391 3725

Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 Senior Designer FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

Creative Designer ANA MAKSIC ana@cpifinancial.net Tel: +971 4 391 3723

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

Finance Manager SHAIS MEMON, ACCA, CMA shais.memon@cpifinancial.net Tel: +971 4 3913727

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

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

Data Analyst NADINE ABOUZEID nadine@cpifinancial.net

Administration & Subscriptions enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709

Authority

TECHNOLO

GY The critical financial need for messaging 20/10/2016

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

Free Zone

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TRAILBLAZ

ERS Zoona—inclusio entrepreneurs n through hip

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

CPI Financial FZ LLC P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576 www.cpifinancial.net

A tale of tw trendo s

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and Media

and Media Free Dubai Technology

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OPINION

A CPI Financial

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SBM Chairman Kee Chong LI KWONG WING A CPI Financial Publication

A CPI Financial

PLUS:

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SBM eyes the regional stage

Dubai Technology and Media Free Zone Authority

Zone Authority

of the Bank of Ghana

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

EDITORIAL editorial@cpifinancial.net

Dubai Technology

Issahaku, Governor

‘Safe, sound and stable’

I OCTOB ER 2016

ISSUE 39

ISSUE 38

stable’ Dr. Abdul-Nashiru

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‘Safe, sound and

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

Contract Publishing Editor SARAH SPENDIFF sarah.spendiff@cpifinancial.net Tel: +971 4 391 3729

OUTLOOK 48 Outward expansion increasing risk

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

Contributors VINCENT O’BRIEN, LEIF M. SJÖBLOM MICK FENNELL

confidence ALN has realistic expectations for the market and an optimistic outlook for growth

Chief Executive Officer ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681

London Bureau ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476

The new Development Bank of Nigeria specifically targets small business growth

INVESTMENTS 46 A reality check and resurge in

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NEWS ANALYSIS

Government spending has been subdued in Accra and elsewhere since the start of the IMF programme (CREDIT: NATALY REINCH/SHUTTERSTOCK).

Will politics throw Ghana off track? Ghana’s debt and deficit position is improving, but elections are coming

ince Ghana started its threeyear extended credit facility (ECF) programme with the IMF in April 2015, the budget deficit has been halved from 12 per cent in 2012 to six per cent today, with Ghanaian authorities planning to reduce the deficit to 5.3 per cent by the end of the year. The debt situation is still worrisome, standing at 72 per cent of GDP in 2015 from a high of 150 per cent in 2006, but thanks to austere budgeting, it is also on track to decline. Yet national elections are on 7 December, and with them come concerns about rising expenditures, between potential instability and reallocation of funds. On 28 September the Executive Board of the International Monetary

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Fund (IMF) completed its third review under the extended credit facility programme, calling Ghana’s progress ‘broadly satisfactory’. Following the review, the Fund approved disbursement of $116.2 million, bringing Ghana’s total loan under the arrangement to $464.6 million. At his first press briefing as Director for the IMF African Department just two weeks after the review, Abebe Aemro Selassie spoke on Ghana’s situation, saying that fiscal data up to the end of July showed ‘very weak revenue performance’ but that spending has been contained. “It’s difficult to forecast what’s going to be happening in the coming months. But we are encouraging… For this programme to do what it’s

been designed to do, and what has been achieved so far, it’s going to be important to avoid the election year spending increases as we have seen in the past,” Selassie said. Projections on this front have been mixed. Raza Agha, Economist at VTB Capital, commented that, “The leadup to and the post-election period will see heightened political noise and uncertainties,” and noted that postelection challenges took eight months to resolve in 2012 alongside increased risks of ‘pork-barreling’—though the country was not under an IMF programme during that election. “Already, the fiscal trajectory in the first half of 2016—central Government cash deficit of 3.1 per cent of GDP— suggests Ghana could miss the fullyear fiscal targets/projections under the IMF programme as in the second programme review report or the 2016 mid-year revised budget [of 5.3 per cent of GDP,” Agha said. This is a far cry from the IMF’s September review, during which Acting Chair and Deputy Managing Director Tao Zhang projected that Ghana would run a primary surplus this year, which, along with the stability of the cedi, should contribute to a marked decline in the debt-to-GDP ratio. “There has been progress in stabilising the macroeconomic situation and reducing financial imbalances, but fiscal risks remain elevated,” Zhang conceded during the review, advising a tight monetary policy from the central bank and continued commitment to fiscal consolidation efforts. On 23 September, Moody’s Investors Service affirmed the Government of Ghana’s issuer and senior unsecured rating at B3 and changed the outlook to stable from negative, noting the significant deficit reduction under the IMF programme along with improved Government liquidity following the successful issuance of a $750 million Eurobond.

www.bankerafrica.com

23/10/2016 14:04

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Capital Intelligence Ratings (CI) affirmed National Bank of Egypt’s long-term foreign currency rating (FCR) at ‘B-’ and the short-term FCR at ‘B’, a stable outlook, noting that the bank was constrained by Egypt’s ‘B/B’ ratings, also stable, but also its own loan portfolio, which could lead to credit stress. CI also affirmed Arab African International Bank’s (AAIB) long-term FCR at ‘B-’ and the short-term FCR at ‘B’, both with a stable outlook, noting Egypt’s sovereign constraint but commending AAIB for sound capital adequacy and acceptable loan asset quality.

SOVEREIGNS S&P Global Ratings and Moody’s both affirmed their ratings on the Republic of Congo, at ‘B-/B’ stable (S&P) and B3 negative (Moody’s). Both agencies highlighted Congo’s failure this June to make payments on time for its 2029 bond note, but also expectations that the government financing requirements will level off in 2016-17. S&P also affirmed the ‘BBB-/A-3’ stable ratings for Morocco, projecting moderate GDP growth, an improved deficit position, but also volatility arising from the agriculture sector.

ON THE RECORD

Reforming the [Security] Council is not merely optional but an imperative which, if not carried out, may hinder the United Nation’s ability to act and cause its legitimacy and credibility to crumble. — Angola Vice President Manuel Domingos Vicente speaking at the United Nations General Assembly on 22 September

A QUICK WORD DBSA finances 21 renewable energy projects

The Development Bank of Southern Africa (DBSA) has financed 21 renewable energy projects since the launch of its renewable energy programme.

Global FDI to fall 10-15% in 2016, says new UNCTAD projection

Global foreign direct investment (FDI) flows are expected to drop to between $1.5 and $1.6 trillion in 2016.

Voting begins for Islamic Business & Finance Awards 2016

Voting for the 11th annual Awards will run from 13 October to 10 November on www. cpifinancial.net.

New ICC survey finds worsening global shortage of trade finance

According to the survey, a growing number of banks concerned about ability to finance global trade and nearly 60 per cent of SME applications for trade finance are rejected.

S&P affirmed its ‘B’ long-term and ‘B’ shortterm sovereign credit ratings on the Republic of Cameroon, stable outlook, citing political risk on the question of presidential succession and expectations of rising deficits, but also relatively low Government debt. S&P bumped the outlook on Cape Verde’s ‘B/B’ rating to stable from negative, citing solid Government institutions and significant progress on the debt front. Finally, S&P also revised its outlook on Kenya to stable from negative and reaffirmed its ‘B+/B’ ratings, noting the economic growth and prospects remain strong while the elevated risks at end-2015 have lessened, in part due to improved public finances and a March agreement with the IMF.

Africa countries are particularly hit by a slowdown in trade financing, according to the ICC (CREDIT: LOVE LOVE/SHUTTERSTOCK). For these stories and more, visit www.bankerafrica.com

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IN THE NEWS

Africa needs ‘fair chance’ to trade, Ghana’s President tells UN Assembly

hat Africa needs is not development assistance from developed countries but ‘a fair chance’ to trade with the rest of the world, the President of Ghana told the United Nations General Assembly on 21 September. “Africa does not need your sympathy or overseas development assistance,” said President John Dramani Mahama during the general debate. “Africa needs a fair chance to trade with the rest of the world and amongst ourselves. The progress towards the creation of a Continental Free Trade Area (CFTA) is commendable and must be fast tracked.” President Mahama, pictured here with a US delegation in Ghana earlier this year, urged world leaders to see Africa as He said that raising trade partners (CREDIT: KWABENA AKUAMOAH-BOATENG/US intra-African trade alone EMBASSY IN GHANA/FLICKR). from the paltry average of 15 per cent will create better opportunities for Africa’s youth. Recently, Mahama announced that citizens of other African countries travelling to Ghana would now obtain visas on arrival. This would stimulate trade and investment if it were replicated across the continent, he said. “The mistake with Africa is that we are seen as a homogenous unit and treated as such, not taking cognisance that we are a whole continent with different aspirations, cultures, democracies and economic development,” he said. While Africa accounts for close to one third of the UN membership and nearly two-thirds of the work of the UN Security Council, “it remains woefully under-represented in the permanent and non-permanent category” of the Council, he said, calling for an equitable reform.

China’s Eximbank makes first guarantee outside of China with Afreximbank

The first-time loan facility was over 100 per cent subscribed (CREDIT: CORLAFFRA/SHUTTERSTOCK).

his September, the African Export-Import Bank (Afreximbank) successfully closed a $250 million syndicated term loan facility with a guarantee by the Export-Import Bank of China (China Exim), as well as a $50 million bilateral term loan facility, also extended by China Exim. This loan is China Exim’s first guarantee for an African financial institutional borrower, with Standard Chartered Bank acting as sole coordinating bank and documentation agent on the facilities, as well as sole bookrunner on the syndicated facility. The five-year syndicated loan was also the first fiveyear syndicated loan raised by Afreximbank and was over 100 per cent subscribed. Standard Chartered said that 15 investors and banks participated in the facility.

In Kenya, Dubai Chamber opens fourth African office The Dubai Chamber of Commerce and Industry opened its fourth African office in Nairobi on 4 October, following offices in Ethiopia, Ghana, and Mozambique, as well as locations in Azerbaijan and Erbil in Iraq. Majid Saif Al Ghurair, Chairman of the Dubai Chamber, opened the office while on a trade mission to Kenya and Ethiopia. The opening ceremony was followed by a public sector roundtable discussion, meeting between Chamber officials from the two countries, corporate site visit and a networking dinner hosted by the UAE Ambassador to Nairobi at his residence. “Kenya is considered the economic, commercial and the logistics hub of East Africa. In 2015, Kenya was Africa’s 5th largest economy in terms of GDP in current prices valued at $61.4 billion while the country has the sixth largest market in Africa in terms of population, with total number of 44.1 million persons, during the same year,” Al Ghurair said. Kenya is the emirate’s 49th largest trading partner The Dubai business delegation met with Uhuru Kenyatta, President of Kenya. with bilateral trade rising over the last few years to reach $1.1 billion in 2015.

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20/10/2016 08:27

AfDB approves $310 million loan for Ecobank Transnational The Board of Directors of the African Development Bank (AfDB) approved on 21 September 2016 a $310 million trade finance loan for Ecobank Transnational Incorporated, parent company of the Ecobank Group. In a statement, AfDB said that the facility will provide critical trade finance funding to support economies in which Ecobank is present, primarily through support to SMEs and local companies involved in import-export activity. The intervention comes at a time of falling commodity prices Ecobank CEO Ade Ayeyemi admitted earlier this year that some of the banks major markets were which have caused shortages facing challenges (CREDIT: SÉBASTIEN GRACCO DE LAY) in foreign exchange supply and led to unmet demand for trade finance instruments to support ongoing structural changes in the respective economies in Sub Saharan Africa. “The project will help address critical market demand for trade finance and dollar liquidity by supporting vital economic sectors such as agri-business, chemicals, construction, engineering, food processing, manufacturing and non-traditional exports,” the AfDB said.

Credit Agricole authorised to establish Islamic banking unit The Government of Morocco authorised Credit Agricole du Maroc to establish a Shari’ah-compliant subsidiary, the first in the country. An official bulletin issued on 8 September by the central bank, Bank Al-Maghrib, announced that the state-owned Credit Agricole du Maroc, not related to France’s Credit Agricole, has obtained permission from the Ministry of Finance to create a subsidiary with the support of the Islamic Development Bank. Islamic finance, or participative finance as it is referred to in Morocco, has been in the works for some time. The draft law to create participatory Islamic banks was first adopted by the Cabinet on 16 January 2014, with negotiations since then over the establishment of a Shari’ah Board and the framework for Islamic banks to operate. The central bank previously promised to begin issuing Islamic banking permissions by the end of this year, with banks beginning operations in early 2017. Credit Agricole will reportedly own 50 per cent of the Islamic banking window as a joint venture with the IDB with an initial capital of MAD 200 million. The two institutions have expressed plans to raise it to MAD 400 million eventually.

Bank Windhoek rebrands as the Capricorn Group

ank Windhoek Holdings Limited (BWH) launched its new name and brand at a stakeholder event on 22 September 2016, following the approval of shareholders on 29 August 2016 to change the name. BWH is now known as Capricorn Investment Group, a diversified financial services group listed on the Namibian Stock Exchange with interests in banking, insurance, wealth and asset management. At the same event, Capricorn Group also launched its first Integrated Annual Report for the period ending 30 June 2016. The new name and brand of the Group is also on the cover of the Integrated Report. Net profit after tax stood at $15.6 million, compared to $17.5 million in 2014. Revenue was $95.5 million ($89.1 million in 2014), an increase of about 7.2 per cent. Return on equity was 12.6 per cent, compared to 16.5 per cent a year prior.

Zimbabwe’s NMB receives $15 million LOC for SMEs The Netherlands Development Finance Company (FMO) and Swedfund signed a loan agreement with Zimbabwe’s NMB Bank for a four-year line of credit (LOC) towards SME financing in the country. The bank said that it will particularly target specific disadvantaged groups such as women business owners. NMB Bank Chief Operating Officer Gerald Gore said, “SMEs are the backbone of the Zimbabwe economy and as NMB we have been aggressive in sourcing cheaper and long-term finance to support this critical sector of the economy. Further, the line will also provide the much-needed nostro funds to support critical imports by our customers.”

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NEWS SPOTLIGHT ETHIOPIA

Seed distribution boosting crop yields More than 32,000 tonnes of seed have been distributed to around 1.7 million food and nutrition insecure households across Ethiopia’s six major regions by the Government, Food and Agriculture Organisation (FAO) and other partners, to aid the region in the wake of devastating El Niño drought effects. A wheat farmer in the Kulumsa region of Ethiopia (CREDIT: These joint efforts have E. QUILLIGAN/CIMMYT/FLICKR). enhanced preparations for the critical summer meher planting season, from which an estimated 85 per cent of Ethiopia’s food supply is derived, FAO said. The El Niño-induced drought resulted in two failed planting seasons in 2015, decimating household seed supplies across the country and severely compromising national food security. The drought led to 10.2 million people requiring emergency food and livelihoods assistance at the start of 2016. It is now estimated that around 9.7 million Ethiopians still require assistance.

Ethiopia will bounce back on growth-oriented reforms, says IMF

During a review of its programme with the country, the International Monetary Fund (IMF), acknowledged the significant impact the drought and weak global economy have had on Ethiopia this past year, with GDP growth slowed to 6.5 per cent for this year. However the Fund noted that the effect was mitigated by effective and timely policy responses to the drought, and “buoyant industrial and services sectors”. A supplementary budget also helped address the social costs of the drought, while keeping the general government deficit at three per cent of GDP. However, the external current account deficit, estimated at 10.7 percent of GDP, remains wide. Over the medium-term, the IMF said growth is projected to recover to within the 7.3-7.5 percent range, reflecting the plans recently adopted in the second Growth and Transformation Plan (GTP II).

A potential power supply deal between Ethiopia and Tanzania According to law firm Clyde & Co, Tanzania and Ethiopia are expected to sign a 400 megawatt (MW) power purchase agreement soon. The hydro-power generated electricity will come from the Grand Ethiopia Renaissance Dam, currently under construction and expected to be the largest dam in Africa. Clyde & Co said that Ethiopia plans to increase energy generation capacity from 9,515.27 GWh in 2014/15 to 77,343 GWh by 2024/25, with the goal that 90 per cent of the country’s energy will be renewable.

Prime Minister calls state of emergency on rising tension

Prime Minister Hailemariam Desalegn has restricted web and mobile services over violence in Oromia (CREDIT: ERIC MILLER/WORLD ECONOMIC FORUM).

ollowing a 2 October protest in the Oromia region that was met with government force and at least 55 deaths, Prime Minister Hailemariam Desalegn in early October declared a sixmonth state of emergency in Ethiopia. International observers expressed concern for human and political rights during this time. In a 7 October statement, Rupert Colville, spokesperson for the UN High Commissioner for Human Rights (OHCRH) said that there is ‘a clear need’ for an independent investigation into the Oromia protest and other rising violence. “Instead of cutting off access to mobile data services in parts of the country, including in Addis Ababa, we urge the Government to take concrete measures to address the increasing tensions, in particular by allowing independent observers to access the Oromia and Amhara regions to speak to all sides and assess the facts,” Colville said.

www.bankerafrica.com

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HAPPENINGS

And the winners are… The fourth annual West Africa Awards saw thousands of votes to recognise the best institutions in Ghana and the region

n 19 September, voting opened on www.bankerafrica.com for the fourth annual West Africa Awards, attracting more than 11,800 votes from across the region and banking industry. From the dozens of shortlisted institutions and financial tech companies, we have 10 clear winners. The Ecobank Group scooped two awards, with the regional Ecobank Transnational Incorporated grabbing Best Commercial Bank in West Africa and the Ghana entity being recognised as the best commercial bank in the country. Overall, foreign internationals swept the regional categories, with the notable exception of Nigeria’s Access Bank taking Best Retail Bank in West Africa. As reported in last month’s Nigeria Country Focus, Access was the only analysed banks to report assets growth in 2015 (of four per cent). It seems the bank’s success in managing their balance sheet through difficult times has been reflected in subscriber’s votes. “In four short years our Awards programmes have become established as a valued and respected benchmark,” Robin Amlôt, CEO of CPI Financial, the publisher of Banker Africa, said. “We are particularly pleased to see growth in the voting numbers, showing engagement and interest from the industry and offering a true reflection of the views of bankers and financiers in the region,” he added. The annual Banker Africa Awards are continent-wide programmes open to all banks and financial institutions in Africa. The aim of the Awards programme, split into four individual regions (North Africa, East Africa, West Africa and Southern Africa), is to recognise outstanding performance and excellence in the financial services industry. The Banker Africa West Africa Awards, steadily growing since the inaugural 2013 recognitions, reflect the core philosophy of the magazine’s publisher, CPI Financial, aiming to identify and promote excellence and best practice in financial services.

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BANKER AFRICA WEST AFRICA AWARDS 2016 WINNERS GCB

Best Retail Bank - Ghana

Ecobank Ghana

Best Commercial Bank - Ghana

Stanbic Bank Ghana

Best Corporate Bank - Ghana

GT Bank Ghana

Most Innovative Bank

Access Bank

Best Retail Bank - West Africa

Ecobank Transnational

Best Commercial Bank - West Africa

Standard Bank CIB

Best Investment Bank - West Africa

Citibank

Best Corporate Bank - West Africa

Computer Warehouse Group

Best Technology Provider

Entersekt

Best Mobile Technology Provider

REWARDING EXCELLENCE

The core philosophy of CPI Financial, the publisher of Banker Africa, is transparency, ensuring accurate reporting of economics and financial matters, the factors determining the future of the banking and finance community and the business deals driving the industry forward. Our Awards programmes are designed to reward and promote excellence and competition in the drive to set new standards in the industry in quality of service, best practice and financial performance.

www.bankerafrica.com

20/10/2016 08:29

HAPPENINGS

Trumped-up charges, or governance at work? South Africa’s Finance Minister has been called to court on fraud charges that many, including the President, are opposing Finance Minister Pravin Gordhan is expected in court on 2 November on fraud charges (CREDIT: GOVERNMENTZA/GCIS/FLICKR).

lmost a year after the finance minister shakeup that triggered a drop in ratings, the rand and investor confidence, South Africa’s National Prosecuting Authority (NPA) has issued a formal summons to current Finance Minister Pravin Gordhan to appear in court on 2 November over fraud charges. The allegations include former South African Revenue Service (SARS) Commissioner Oupa Magashule and former Deputy Commissioner Ivan Pillay, who along with Gordhan are charged with ZAR 1 million fraud reportedly related to Pillay’s early retirement pay out. In a statement released swiftly after the announcement, South Africa President Jacob Zuma reaffirmed his support for Gordhan and urged the NPA and other

institutions to “conduct the matter with the necessary dignity and respect”. “Our society is anchored on the rule of law as well as fair and just judicial processes. In this regard, Minister Gordhan is innocent until and unless proven otherwise by a court of law. This is a fundamental pillar of our constitutional democracy and the rule of law,” said President Zuma on 11 October as allegations came out. The charges have stoked fears amongst investors that uncertainty could lead to further deterioration of government finances as oversight on state-owned enterprises, leadership on the budget and investor confidence all fall. Alan Hirsch, Professor and Director of the Graduate School of Development Policy, University of Cape Town, wrote on The Conversation that the ‘trivial

nature’ of the charges and the way the investigation is being conducted means that can only mean that there is malicious intent behind them. “The charges are widely viewed as an attempt to remove Gordhan from office without formally firing him, or to justify doing so soon,” Hirsch said. “These developments bode ill for South Africa. Because of the nature of events, including the circumstances of the firing of Minister Nhlanhla Nene in December 2015, all reasonable observers will expect the quality of financial management to deteriorate in a post-Gordhan scenario. They will expect that the reason for Gordhan’s removal is to loosen controls over the country’s National Treasury,” he added. Just days before the charges were announced, Gordhan had invited citizens to share their views before the Government presented its mediumterm budget policy statement (MTBPS) on 26 October 2016. “The MTPBS will be presented against the backdrop of a sluggish economy, the looming threat of a possible negative view by independent rating agencies, fees must fall campaign, as well as uncertainty in the global economic conditions. There is as usual a balancing act that must be struck to give attention to various competing priorities,” the Ministry of Finance said in a statement on the upcoming presentation.

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OPINION

Recent global factors have exacerbated certain challenges in trade finance but multi-lateral development banks are helping fill the gap, Vincent O’Brien says.

A challenging time for African trade Africa is ‘the land of opportunity’ but liquidity and trade finance support challenges remain, writes Vincent O’Brien, Chair of the International Chamber of Commerce (ICC) Banking Commission Market Intelligence, as he discusses the chamber’s newest global survey 14 page 14-15 Opinion_039.indd 14

he fact that Africa faces challenges is not news. Yet just when the challenges it has faced since the global financial crisis had become, by and large, quite manageable, the global economy was hit with another punishing year—with Brexit, political uncertainty globally, and a fall in commodity prices taking their toll. As the International Chamber of Commerce (ICC) Banking Commission’s 2016 Global Survey on trade finance shows, the challenges Africa faces, therefore, while not new, have compounded.

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Take Brexit, for instance. Despite the fact that the UK hasn’t even yet triggered Article 50—the start of the official process to leave the EU—Brexit has already made its mark. Many African countries have long had traditional trading links with Britain, and Brexit creates uncertainty— which slows investment decisions, and delays ‘signing off ’ on trade market access agreements. Furthermore, Britain’s tumbling currency is already directly—and negatively—affecting African exports, where profit margins can be shredded. The immediate negative impact of the value of workers remittances is also becoming evident. Of course, Brexit is not the only cause of Africa’s challenges. The drop in commodity prices certainly plays its part. Africa’s exports are 80 per cent based on raw, unprocessed, commodities, and 20 per cent on processed goods. Intra-African trade accounts for 40 per cent of the former, and 60 per cent of the latter. It is a simple fact that the collapse in commodity prices— which are predominantly priced in US dollars—create issues regarding dollar liquidity. The demand for commodities has shrunk, and the US dollar inward currency has shrunk in turn. Indeed the value of banks’ intermediated trade finance in Africa is estimated to be $320 billion. Given that total African trade currently stands at about $1.2 billion, this suggests that about a quarter of the total value of trade is intermediated by banks in Africa. The fall in commodity prices has caused shortages in foreign exchange supply, which has also led to a high demand for trade finance instruments to support ongoing structural changes in the respective economies in Sub Saharan Africa—demand that is not being adequately met.

TRADE FINANCE GAP

Certainly, the fall in commodity prices, as well as the weak economic prospects for Africa’s top trading partners—such as China and the EU (particularly given Brexit)—has contributed to a trade finance gap in the region; one that is much higher than earlier perceived. In fact, figures from the African Development Bank (AfDB) suggest that the gap could now stand at around $120 billion. The decline in trade activity in terms of volume is evident through the SWIFT messaging traffic reported in the Global Survey. Certainly, SWIFT traffic in the region has fallen by over 15 per cent since 2011.

The fact that Africa faces a significant trade finance gap is severe. Africa relies on trade, and 90 per cent of trade relies on financing – Vincent O’Brien, Chair of the ICC Banking Commission Market Intelligence Much of African trade with external partners is transacted using letters of credit (LCs) issued subject to ICC Rules. While many banks have been facing pressure to make reimbursements on maturity dates, feedback from the market is that liabilities are either being met, or the agreed extensions are largely being honoured.

PLUGGING THE GAP

Of course, the fact that Africa faces a significant trade finance gap is severe. Africa relies on trade, and 90 per cent of trade relies on financing. If there is no funding for trade, it will struggle to continue, and certainly cannot increase. This is particularly true for

the region’s internationally-oriented small- to medium-sized enterprises (SMEs)—who are the backbone of global trade, but also the least likely to receive funding. In fact the Global Survey shows that SMEs face 58 per cent of total trade finance rejections globally (by contrast, multinationals only face nine per cent of rejections). So, what can be done to help plug the liquidity and trade finance gap? As the Global Survey demonstrates, much has been achieved by multilateral development banks (MDBs) stepping in to provide trade finance, although more can still be done. For instance, the 2016 survey revealed that the role of multilateral development banks (MDBs) and export credit agencies (ECAs) in addressing trade finance gaps was perceived as positive by 75 per cent of the respondents. By way of a recent example, The AfDB approved a $310 million trade finance loan for Ecobank Transnational Incorporated, parent company of the Ecobank Group. AfDB said the facility would provide critical trade finance funding to support economies in which Ecobank is present, primarily through support to SMEs and local companies involved in import-export activity. Such initiatives can act as a model that can be leveraged to provide much needed trade finance support not just across Africa, but globally. One only needs to look at the minimal default rates under the MDB trade finance programmes (TFPs)—as reported in the Global Survey—to see that it is a secure, and effective, way to fill the trade finance gap. The path ahead for African trade is uncertain, and continues to be unsteady. But its opportunities have not gone unnoticed, and with MDBs and other players stepping in to fill the trade finance gap, there is still, definitely, some light.

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15 23/10/2016 14:12

OPINION

Is Africa the land of business opportunity or pain? Leif M. Sjöblom, Professor of Financial Management at IMD University, discusses the benefits and challenges of operating in the world’s second-largest continent

The young, booming population makes for demanding customers, says Leif M. Sjöblom.

ith growth stagnating around much of the world, businesses often look to new markets to find opportunities. BRIC countries were previously thought of as the global El Dorado by many companies but Brazil, Russian, India and China largely turned out to be disappointing, as their economies have stagnated and continue to present significant hurdles to entry.

What about Africa? Its growth rates have been touted as among the highest in the world. Well, the problem is that data from Africa is often unreliable because so much of its economy is undeclared. But, what that means is there is actually a lot more money in the continent than what is on the books. So how can you tell if the growth rates are real or not? One of the best indicators

16 page 16-17 Opinion_039.indd 16

is to look at how many construction sites are underway. By doing this we see that Africa is booming. With this growth in building has also come a boom in the number of middle class families and increasing stability. Yes, the business environment in Africa is complex but many opportunities are there to be seized. Just look at Heineken whose recent profits on the continent have been more promising than anywhere else in the world for the company.

LOW HANGING FRUIT THE SIZE OF WATERMELONS As a good friend of mine, the former President of Dow Africa, Stéphane Paquier, says, “In Africa the low-hanging fruit is the size of watermelons.” Despite its potential, North Americans and Europeans often have a negative

perception of Africa. But this bias, influenced by factors such as the media, needs to be overcome if Westerners want to reap the benefits that Africa’s opportunities can potentially offer. In Africa one of the most important business factors is speed. This tends to be a problem for Western companies because they often have their headquarters in the US or Europe and micromanage their decisions from there. This slows them down and reduces their capacity to act fast. On the other hand, the necessity for speed is an advantage for businesses from developing countries. These companies tend to be used to acting fast and generally perceive Africa as less risky than businesses from developed countries might. Another mistake that Western companies often make is to rely on one pan-African strategy, which is a recipe for failure. The continent is enormous— bigger than China, Western Europe, the United States, India and Argentina combined! Companies do not use the same strategy for all of those markets so why would they do it for Africa? So how should a Western company do business in Africa? Companies often struggle with this dilemma. A common approach is to draw a line across the Sahara and then ask—where do we start? More often than not the typical answer is South Africa due to its similarities with

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Europe and the US. While it’s a great place for a vacation, it doesn’t make sense to set up shop only there. When big companies do business in Africa, it is difficult to avoid Nigeria, which is likely to be the biggest market for many businesses. However, there are some other up-andcoming markets that have a lot of potential and will offer great opportunities in a few years, like Ethiopia. Angola is another, and it is currently a hotspot for oil companies.

While it is improving, there is still widespread corruption and political instability. Bureaucracy can be daunting and infrastructure is lagging behind—some places do not even have electricity 24 hours a day, for example.

T H E FA S T E S T G R O W I N G POPULATION IN THE WORLD

However oil, what most people think about when they think about business in Africa, is not the most important growing sector. Customer facing industries like fast-moving consumer goods (FMCG) are rising rapidly thanks to a growing middle class and the fact that the continent is home to the fastest growing population in the world. Since it is growing so quickly, the population is skewed towards being young and low-income, which makes for very demanding customers; when you only have a few dollars a day, you want to make sure you get the best value for your money. Trade is also picking up in Africa. The continent boasts 90 per cent mobile phone penetration and it is the location where 80 per cent of the world’s mobile payments take place. So there will be a number of ways tech-savvy companies can make their mark. In addition to these opportunities there are also a number of challenges facing companies which want to do business in Africa. While it is improving, there is still widespread corruption and political instability. Bureaucracy can be daunting and infrastructure is lagging behind—some places do not even have electricity 24 hours a day, for example. The growing middle class is a very positive thing for Africa but it also has strained the capacities of

the continent’s infrastructure. People whose buying power has grown in recent years are rushing to buy cars and this shows on the roads; traffic jams are more and more prevalent. When I go to Africa to do business these days I have to schedule fewer and fewer meetings because of the time it takes to get around in some clogged cities. Talent is also highly sought after in Africa and there is major competition to attract the best workers. Last but not least, securing local financing can also be difficult as trust levels are lower than in other parts of the world.

35 AFRICAN COUNTRIES ARE LESS CORRUPT THAN RUSSIA

Yet all this bad news is relative. In the ‘ease of doing business’ ranking, 14 African countries rank ahead of Russia, and in the corruption index, 35 countries are less corrupt that Russia. Very few multinational companies would think twice about doing business in Russia, so why do it for Africa? What the continent can do for itself in order to create and capitalise on the business opportunities it offers, is to continue to invest in infrastructure; so far even though infrastructure is lagging, investment levels are on track. Many African countries also need to focus on encouraging the creation of more large and medium-sized companies in order to create more jobs. To do this, education systems, which are currently geared toward creating civil servants, have to be changed. Schooling should be more oriented toward vocational skills (carpentry or plumbing, for example) and instilling entrepreneurial values. Until then international businesses just have to adjust to the current realities in Africa. Doing business in Africa is very different than doing it elsewhere. If you come with a European or American perspective, you probably will not succeed. But if you can adapt, opportunities abound.

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17 20/10/2016 08:32

THE MARKETS

Reinsurers are ‘bullish’ A poll of African reinsurers reveals positive sentiments for the $8.3 billion market despite economic slowdown (CREDIT: DENIJAL PHOTOGRAPHY/SHUTTERSTOCK)

he continent’s reinsurance market is expected to benefit from strong underlying growth, driven by an expansion of its primary markets with insurance premiums of $64 billion. This according to the African Reinsurance Pulse, a study, carried out by Dr. Schanz, Alms & Company, that was released on 3 October at the African Reinsurance Forum in Senegal. The report cited fast economic growth across Africa, alongside the region’s low insurance penetration of 2.9 per cent as a share of insurance premiums to GDP, which indicates the enormous potential for the continent to catch up with the global average of 6.23 per cent for 2015. The survey, based on in-depth interviews with 22 reinsurers and brokers operating in the region, was facilitated by Africa Re, the Africa Insurance Organisation (AIO), Swiss Re, Casablanca Finance City (CFC) and the Qatar Financial Centre (QFC). “More than 90 per cent of Africa’s insurance companies have only been created in the past 40 years,” says Corneille Karekezi, Group Managing Director & Chief Executive Officer of

18 page 18 Markets 039.indd 18

Africa Re. “As a result, our industry still has to build the awareness for the benefits of protecting and enabling economic progress. The Africa Reinsurance Pulse provides succinct data and information on our continent’s reinsurance markets and contributes to this goal as it demonstrates our industry’s potential and also its challenges.” The Africa Reinsurance Pulse stated that the ‘fundamental strengths’ of the African reinsurance markets remain intact, despite the recent economic slump. According to a statement, “New, larger and more complex risks have arisen, requiring insurance protection while the broader African middle class is eager to protect its assets and make provisions for the future. Abundant resources, a juvenile and growing population and the need for investments in infrastructure, energy, health and educational facilities drive the demand for insurance protection and reinsurance cessions.” However it cited a number of challenges as well, including barriers to accessing local expertise, or reliable data and statistics. It also said that political stability is still the biggest threat to the market.

Dr. Schanz, Alms & Company said that majority of the interviewees found current reinsurance rates to be below the average of the last three years. Risks are still far more adequately priced, but competition is mounting as regional and international players fight for market share. However, on a global scale, markets are still perceived as profitable due to stable loss ratios and the region’s limited exposure to natural catastrophes. Overall, the report found that exposure is expected to outpace the region’s GDP as values and risks increase in scope, scale and complexity. However, since rates may decline, 57 per cent of executives polled expect premiums to grow slower than GDP, implying that reinsurers will take on risk at a lower price. It concluded by noting that the advent of new technologies has been a key driver for insurance penetration. The fast and vast dispersion of mobile phones greatly facilitated the distribution of policies to the low-income population that still lives quite scattered in remote or difficult to access rural areas. Microinsurance is the product innovation which greatly contributed to raising the awareness for insurance products.

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23/10/2016 14:13

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18/10/2016 17:33

COVER STORY

A tale of two trends

The continent’s GDP growth has been revised down to its smallest output in years—but that is not the full story

(PHOTO CREDIT: ZHANGYANG1357699723)

t the start of the World Bank-IMF annual meeting on 6 October, World Bank President Dr. Jim Yong Kim, newly appointed to his second term, addressed the increasingly bleak global economic outlook. “Many countries have been hit by falling commodity prices and stagnating global trade. We now have the highest number of developing countries in recession since 2009 and we’ve been working to meet rising demands for assistance to help countries manage global challenges,” Kim said. For the first significant time since the ‘Africa rising’ narrative was born,

complications to the story have arisen. Economic growth in the Sub Saharan region averaged three per cent in 2015 and is projected to fall to 1.6 per cent in 2016, the lowest level in over two decades. Dr. Kim put these numbers into context during a press conference that day. “Among the most worrying numbers coming out of [the annual] meeting is the growth estimate for Sub Saharan Africa,” he said, noting that in 2017, annual GDP growth average is expected to rise to 2.9 per cent. That is in the context of population growth of three per cent. If growth cannot keep up with population growth that

is essentially negative growth, so we’re very worried about it.” Several of the challenges, such as droughts, political uncertainty and policy change, are familiar to the region, but global headwinds and commodities’ drop have thrown more pressure than usual on fragile economies, particularly the large oil exporters in Africa. Acha Leke, Senior Partner at McKinsey & Company, summed it up well. “The Africa growth story is still positive, but more nuanced than it was five years ago, when growth was accelerating in almost all of the region’s diverse economies,” he said.

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As the World Bank said in their biannual report, Africa’s Pulse, the overall slowdown in growth reflects economic deterioration in the region’s largest economies, many of which happen to be the oil exporters. Elsewhere in the region, smaller and non-oil dependent economies have stayed resilient or even positive. In the east, for instance, Ethiopia, Rwanda and Tanzania are posting annual average GDP growth of more than six per cent. In the west, Côte d’Ivoire and Senegal are some of the fastest-growing economies on the continent. “Our analysis shows that the more resilient growth performers tend to have stronger macroeconomic policy frameworks, better business regulatory environments, more diverse structure of exports, and more effective institutions,” Albert Zeufack, World Bank Chief Economist for Africa, said. According to the World Bank’s data, the region can expect a modest rebound, after 2.9 per cent growth in 2017, to 3.6 per cent in 2018—solid by other regions standards, but muted compared to recent trends in Africa. The question now is where that growth will come from— with many countries playing catch-up on diversification efforts and infrastructure needs, significant investments need to be made into supporting manufacturing and African small- and medium-sized businesses.

THE CLIMATE FOR COMMODITIES

At the meeting, Kim said that the commodities price decline plaguing several African economies appears to have ‘bottomed out’, signalling a potential upturn in the future. However the World Bank forecasts that commodity prices will likely linger below their 2011–14 peaks, reflecting the weak global recovery. Faced with growing financing needs, commodity exporters have begun to adjust, but efforts remain “uneven and insufficient”.

As prices do eventually stabilise, output in these countries should grow and inflationary pressures, ideally, will subside a bit. The World Bank says this should eventually lead to a rise in private consumption and investment, but not in the short term. In its latest report, consulting group McKinsey & Company also recognises the diverging paths of Africa’s economies. The research, Lions on the move II: realising the potential of Africa’s economies, breaks the region’s

Our analysis shows that the more resilient growth performers tend to have stronger macroeconomic policy frameworks, better business regulatory environment, more diverse structure of exports, and more effective institutions. — Albert Zeufack, World Bank Chief Economist for Africa economies into three categories encompassing major trends in their stability and rates of growth: vulnerable growers, such as the oil exporters; slow growers, such as South Africa; and stable growers, such as Rwanda. McKinsey found that growth slowed dramatically in the 11 economies accounting for 60 per cent of African GDP—i.e., the continent’s oil exporters and the three Arab Spring countries, Egypt, Libya, and Tunisia. However the remaining economies accelerated their annual growth rate from 4.1 per cent in 2000-10 to 4.4 per cent in 2010-15. For McKinsey, this coupled with increased consumer demand and potential

manufacturing capacity, means the overall outlook is positive. “For investors, vulnerable growers still offer growth potential,” Paul Jacobsen, McKinsey Engagement Manager and report co-author, said said of the resource-rich countries like Nigeria, Zambia and Angola. “But they also pose risks that need to be properly assessed and understood. For governments, several long-term initiatives can improve stability, including mobilising domestic resources to diversify sources of investment and state funding, continued economic diversification, and further strengthening infrastructure investment.” Slow growers, including South Africa, Libya, Egypt and Tunisia, accounted for 46 per cent of Africa’s GDP in 2015, yet grew a collective 1.3 per cent per year from 2010 to 2015— less than the 2.9 per cent a year global average over the same period. “There are a range of challenges facing slow growers, and it is not possible to write a single prescription for all of them,” Jacobsen said, noting that McKinsey had recently published extensive research on South Africa’s case alone. The research, South Africa’s big five: Bold priorities for inclusive growth, found that South Africa has considerable potential to accelerate growth by focusing on five opportunities, including advanced manufacturing exports, infrastructure p r o d u c t i v i t y, n a t u r a l g a s f o r power generation, service exports, and agri-processing. “Delivering on this potential will require the country to embrace some fundamental changes to become more globally competitive; not least, it will have to address a serious skills shortage through a dramatic expansion of vocational training. Tackling such foundational issues will require business and government to come together in a cont. overleaf

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COVER STORY

cont. from page 21

GROWTH OF GLOBAL GDP AND TRADE GROWTH OF GLOBAL GDP AND TRADE

Percent

2 0

-2

-5

Global growth EMDE growth Trade (RHS)

-4 -6 -8 -10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Global growth remains fragile. Commodity-exporting emerging market and developing economies (EMDEs) continue to struggle. In contrast, commodity importers are generally showing resilience.

-10 -15 -20

Source: CPB Netherlands Bureau for Economic Policy Analysis (CPB); World Bank. Note:Global trade is world import volumes adjusted seasonally.

Source: CPB Netherlands Bureau for Economic Policy Analysis (CPB); World Bank. Note: Global trade is world import volumes adjusted seasonally.

FDI AND TRADE REALITIES

GROWTH PROSPECTS OF SUB-SAHARAN AFRICA GROWTH PROSPECTS OF SUB-SAHARAN AFRICA 12

Sub-Saharan Africa SSA excluding Nigeria and South Africa

Percent

10 8 6

After slowing in 2015, growth in Sub-Saharan Africa is expected to weaken further in 2016. This reflects the challenges facing Nigeria and South Africa.

4 2 0 Source: World Bank.

Source: World Bank.

COMMODITY PRICE FORECASTS COMMODITY PRICE FORECASTS

Agriculture Energy Metals

Source: World Bank.

new partnership characterised by shared vision, collaboration, and trust,” he said. “Rwanda provides a compelling example of what can be achieved,” Leke, the report's lead author, said. The East African country, one of the ‘stable growers’ and a leader in GDP growth projections, has undertaken a series of business environment reforms since 2007, resulting in an impressive climb on the ‘Ease of Doing Business’ scale, from 143rd to 32nd in 2014. With the global economy down, countries that can ensure a good business environment for investors and local business alike are weathering the storm better than others.

Commodity prices are expected to remain at low levels, reflecting weak global demand. A modest recovery is expected in the region against this backdrop.

Nevertheless, global foreign direct investment (FDI) has been one casualty of the slower world economy, with the United Nations Conference on Trade and Development (UNCTAD) predicting total FDI flows to decline by 10 to 15 per cent in 2016. Besides the economic outlook and commodities drop, UNCTAD cites effective policy measures to curb tax inversion deals and a slump in multinational enterprises (MNE) profits in 2015. While FDI is expected to bounce back in 2017 and even surpass $1.8 trillion in 2018, UNCTAD says these forecasts are still below precrisis peaks. Africa is one region where the trend may work favourably. UNCTAD said that due to liberalisation measures and planned privatisations, FDI flows are expected to return ‘to a growth path’ on the continent, similar to positive projections for Asia. Overall, FDI to developing—or as UNCTAD calls them, ‘transition’—economies stand to recover most strongly from the downturn, while developed countries could face a more difficult path. This forecast was supported by the recent global survey on trade finance carried out by the International

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Chamber of Commerce (ICC). According to the responses of hundreds of bankers worldwide, the risk profile of trade finance activities by African banks appears to be more favourable than that for traditional bank lending. The ICC noted that the average non-performing loan (NPLs) for trade finance portfolio in Africa is just four per cent, which is lower than the NPLs of none per cent for traditional bank assets (more on the ICC’s Africa findings on pg. 14, this issue). Meanwhile, McKinsey’s research found that manufacturing output could be an engine for growing African countries’ trading positions. Between rising African demand for consumers goods and the parallel attempts to balance import/export levels by manufacturing more goods at home, Africa has an opportunity to nearly double manufacturing output from $500 billion today to $930 billion in 2025. “Our new research shows how in coming years Africa will benefit from strong fundamentals including a young and growing population, the world’s fastest urbanisation rate, and accelerating technological change. These will help drive rapid growth in consumer markets and business supply chains, and will offer opportunities to build large, profitable industrial and services companies,” Leke said. “Tapping Africa’s consumer markets will require companies to have a detailed understanding of income, demographic, and category trends. Thriving in business markets will require businesses to offer products and develop sales forces able to target the relatively fragmented private sector. But what our research also shows is how much work needs to be done both by companies themselves and by Africa’s governments to translate opportunity into tangible economic benefits,” he added.

The priorities for governments include continuing on infrastructure and regional integration plans, but also spearheading sustainable

The Africa growth story is still positive, but more nuanced than it was five years ago. —A cha Leke, Senior Partner at McKinsey & Company

urbanisation and diversification efforts that will help stabilise economies and bring opportunities to the massive youth population. In terms of what financial service players can do, Mutsa Chironga, report

co-author and Partner at McKinsey, cited a recent partnership between Nigerian banks and the Central Bank of Nigeria (CBN) to extend over $100 million in lending to Nigerian farmers through a risk-sharing fund. Initiatives such as this, targeting the under-served population, are key. “Financial services players can also seek to innovate in payments; for example, MasterCard has partnered with the South African Government on a scheme to distribute benefits electronically,” Chironga said. “Finally, banks can engage with regulators to ensure that customer protection regulation, such as the National Credit Act in South Africa, is done in a manner that balances both customer interests on the one hand, with the banks’ ability to viably serve lower income households.”

Debt ratios—doom ahead? One area of increasing concern in this global climate has been the debt obligations of developing countries—and rightly so. Several high-growth African countries have significant debt arrangements with the World Bank and International Monetary Fund (IMF)—debt to GDP ratios above 50 per cent that drew criticism even before these countries were under pressure (Ghana comes to mind). Asked about these concerns in the annual meeting press conference, World Bank President Dr. Jim Yong Kim said the situation was not as bad as it seemed. “I am not yet concerned that we’re reaching a debt crisis level, certainly not in most of Sub Saharan Africa. But we have to watch it,” he said, adding that the Bank is focusing on creating asset classes that will require relatively less indebtedness and bring private sector investments into these countries. Interestingly, Kim cited Lebanon and Jordan’s recent debt troubles as examples of the Bank’s responsiveness. Both countries have seen debt ratios spike with the refugee crisis, with Jordan’s ration hitting over 90 per cent in a relatively short period. “So one of the things that we are now doing is we’re being much more strategic and much more flexible in the way we use concessional finance. So for Jordan and Lebanon we’re actually providing them concessional lending,” he said, indicating that the same flexibility could be applied in African cases. “We’re watching debt levels very, very carefully,” he said.

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23 23/10/2016 15:42

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COUNTRY FOCUS MOZAMBIQUE

‘Positive disruptors’ in a hard economy Orlando Chongo, Managing Director of BancABC Mozambique, discusses the national economy and the ways BancABC is committed to growth

hat do you see as the key challenges in achieving financial inclusion in Mozambique?

With Mozambique’s 800,000 square kilometres encompassing 26 million people, including 14 million adults of which only 20 per cent have access to financial services, there is potential to grow. Expanding access to basic banking products, mainly in rural areas, [is possible] if basic support infrastructure and access to energy or telecoms is developed to balance with the excessive concentration of economic activities in a few main centres of the country. The majority of the country´s active population operates in the agriculture and informal trade sectors, so there are limited options from product standpoint that can be offered at acceptable risk levels. Furthermore, there are five branches for every 100,000 Mozambican adults and eight branches for every 10,000 square kilometres— this substantially contributes to a lack or limited understanding of financial systems and services. There is a financial inclusion project, initiated by the central bank, to address this gap with the aim of expanding financial access and use of financial services, enhancement of financial systems infrastructure and financial education. BancABC is playing its part in this process by supporting the financial

education initiative. We have recently sponsored an easy reading pocket book Financial Literacy Manual for Adults and Children with the main objective of, in simple language, promoting financial education and an understanding of banking activities with focus on savings.

What, in your view, is the most effective way to reach new customers or offer new products? Do you see this shifting in the near future? Similarly to most African economies, Mozambique is a young, growing economy with its populations rapidly being exposed to a more technologically-based environment. Reaching potential clients will shift from the traditional ‘brick and mortar’ into a digital-focused expansion where successful financial institutions will be the ones that embrace innovation and nontraditional banking partnerships. The new generation of clients demands easy and fast access such as we see being offered through mobile wallet, plastic money, e-money, and many others.

How has BancABC evolved with regards to this? BancABC as part of Atlas Mara has set its core target of leading the innovation in African financial services. We are positive disruptors and see banking beyond basic vanilla products.

BancABC is the SME’s bank, especially in this challenging time, says Orlando Chongo.

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In Mozambique we are moving fast and so far have achieved several milestones with the development of agency banking. Within the partnership agenda we embrace, we are exploring cutting edge technological concepts to reach the unbanked population and provide basic and relevant financial products. Meanwhile, we continue to accelerate our investment in quality of human capital, systems and footprint as core supporting platform to our growth aspirations.

With recent development in the Mozambican economy, what are your own projections for growth in the near term?

We believe in long term prospects and the turnaround of the economy, however, as it stands, the Mozambican economy is currently weak with projected growth of 3.5 per cent in 2016, which is 350 basis point below historical averages. Political instability impacts economic performance and investments. The debt overhang stocks are currently estimated at around 85 per cent of the GDP; a commodity slump has reduced export revenue with the resultant sharp depreciation of the metical; that also increased domestic prices as well as the debt repayment costs. Despite the weak GDP growth, the BoM [Bank of Mozambique] will likely increase interest rates from current levels and this will be another headwind to economic activity. The expected announcement of a final investment decision on Coral Floating LNG may initially uplift sentiments, rather than stoking a surge in FDI. However, due to sharp depreciation in metical, Mozambiqueâ&#x20AC;&#x2122;s economic size is expected to decline by over 50 per cent in US dollar terms from $15 billion in 2015 to $7.5 billion in 2016. In 2017, in US dollar terms, the economic size will further decline

to $7.3 billion with GDP per capita declining from $650 in 2014 to less than $300 in 2016 and around $255 in 2017. Due to fiscal pressures following the withdrawal of donor support and depressed revenue performance, the Government will try to match cashflows with expenditures by reviwieng some of the civil servants salary and overtime payments. Large spending cuts will impact business activities and a widening of the fiscal deficit will further constrain GDP growth.

Likewise, what you you see as the biggest challenges in the Mozambican banking sector today, and how are you navigating these?

The banking sector overall has experienced significant improvement in innovation, although most processes are still manual and there is still a reliance on physical branch network in a growing technological environment. We will focus on differentiating ourselves by investing in the future, helping our customers with a onestop shop banking concept through automated processing and digital channels capped with partnership, and most importantly, continue to build our valuable Atlas Mara brand equity. As a critical success factor, we will continue to responsibly maintain relationships with our customers, employees, shareholders, peers in the market and most importantly, the communities and regulators.

What segments of BancABC business do you see growing the most in the short and medium term, and why?

We are the SMEsâ&#x20AC;&#x2122; bank and will continue to consolidate our relevance in the value chain that feeds our customers through up to downstream. Itâ&#x20AC;&#x2122;s a segment that will experience

difficulties in the short term given country macroeconomic challenges, with potential to grow in medium to long term. We will maintain our focus of being relevant not only to the target segment but also to their main clients, the large corporates, multinational companies and their staff. Furthermore, the size of our organisation provides nimbleness and flexibility with adequate structure for a fast turnaround within all governance and compliance standards. Being an African bank with local relevance, we believe that we know our clients and their needs sufficient enough in order to build sustainable partnerships to simultaneously win and grow together.

What would you say distinguishes BancABC from other banks in the region?

We are an African bank owned by Atlas Mara [ATMA] group, with operations in seven Sub Saharian countries in SADC [Southern Africa Development Community], ECOWAS [Economic Community of West African States] and EAC [East African Community]. We invest significant amount of time, effort and capital in building an efficient organisation with robust credit risk management, corporate governance, and compliance, policies, processes and information technology to ensure that we sustainably grow our business in a responsible way. We support economic growth and strengthen the financial systems in the countries in which we operate. We aim to be present in more countries where we can be relevant and a scale participant. We are focused on creating value to our stakeholders and keeping our business model rounded to three main pillars which are buy, protect and grow. We have seen a lot progress and provides confidence that we are doing it right.

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COUNTRY FOCUS MOZAMBIQUE

Picking up where debt left off? The IMF and Mozambique are renegotiating their lending agreement after more than $1 billon in undisclosed debt froze the programme Mozambique’s hefty debt, combined with a difficult economic climate, has put banks and businesses under pressure. (CREDIT: JOHN MAGG/WORLD BANK/FLICKER).

rom 22-29 September, a team from the International Monetary Fund (IMF) visited Mozambique, a vital step in restoring confidence after the revelations in April of this year that the country had $1.4 billion in undisclosed debt, bringing total state debt to near $10 billion. The ‘secret’ debt, held in loans from VTB Capital and Credit Suisse, caused

the IMF to suspend a relatively new $283 million loan package—signed in December 2015—until it could clarify the situation with authorities. The September visit followed a meeting just a week earlier between IMF Managing Director Christine Lagarde and Mozambique President Felipe Nyusi over resuming the programme. While that meeting happened behind closed doors, the

IMF mission to the country laid out their key priority upon their visit: an independent audit of the companies that Mozambican authorities have said are largely responsible for the extra debt—state-owned entities EMATUM, Proindicus and MAM. “Following the meeting between President Nyusi and IMF Managing Director Christine Lagarde in Washington on 15 September 2016, the mission

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made considerable progress with the Attorney General’s Office on the drafting of detailed terms of reference [TOR] for an international and independent audit of EMATUM, Proindicus and MAM. Drafting of the TOR is ongoing, and is expected to be completed soon,” Michel Lazare, IMF Mission Chief for Mozambique, said in a statement after his visit. “The authorities have requested the Fund to resume discussions on financial support as soon as possible. A solid track record of implementation of sound macroeconomic policies and an effective initiation of the audit process in the near term would help to create the conditions for a possible resumption of programme discussions with the IMF,” he added. Mozambique has been hit hard by recent global economic conditions— according to IMF numbers, growth is expected to reach 3.7 per cent in 2016, down from 6.6 per cent in 2015. Inflation has risen sharply, to 21 per cent on a year-on-year basis in August, fueled by a roughly 40 per cent depreciation of the metical since the beginning of the year. Furthermore, the IMF noted that while Mozambique’s import levels have gone down, its exports have also fallen. Though a revised budget pushed through Parliament in July has helped with some of these pressures, it has still been a challenging time in the Mozambican economy. In January 2016, before the hidden debt came to light, Mozambique restructured an $850 million bond for the state-owned fishing company, EMATUM, after the company struggled to make previous profit projections and repayments on the 2013 issuance. The restructuring saw Standard & Poor’s (S&P) raise Mozambique’s foreign currency sovereign ratings to ‘B-/B’ with a stable outlook, but Moody’s Investor Services downgraded the

country’s issue rating to Caa1 (stable) on the same action, noting that despite possible positive implications of the bond restructuring it was a “distressed exchange, and therefore a default on government debt”. In March, Moody’s also downgraded Mozambique’s issue ratings to B3 from B2, citing its diminished balance capacity to meet outstanding debt and its increasingly weak balance of payments. According to Moody’s, EMATUM is responsible for 41 per cent of the additional $1.4 billion debt. Two weeks after the IMF mission, at the Africa press briefing during the World Bank-IMF annual meeting, the fate of Mozambique was still up for much discussion. Abebe Aemro Selassie, the new IMF Director for

the Africa Department, said that the Government and the IMF had already hammered out some prerequisites for the independent audit, one of which was the stipulation that the results be made public. “I think this is a very good understanding. We are going to wait to see how that evolves in the coming months,” Selassie said. “This debt issue didn’t really hoodwink the IMF. It hoodwinked the people of Mozambique, so it’s not about us. We can only work with the data that’s provided to us, and we provide advice on the basis of that,” he added in response to journalists’ questions about how the IMF would avoid getting duped a second time around by Mozambique.

Bank intervention in a difficult climate On 3 October, it was reported that the Bank of Mozambique intervened in Moza Banco, the county’s fourth largest bank, due to a negative solvency ratio. Joana Matsombe, Director for Banking Regulation at the central bank, appeared on local television station STV explaining that the bank’s solvency ratio had fallen well below the eight per cent requirements and sat below zero before central bank bailed it out. With the intervention, Matsombe said that deposits were safe and urged consumers not to panic. She added that after the bank stabilises it will be sold within six months. Prakash Ratilal, former chairperson of Moza Banco and also former governor of the Bank of Mozambique, criticised the current economic climate in the country and the lack of liquidity in the market as a whole. Moza Banco’s major foreign investor, Novo Banco, did not seem willing or able to inject the needed capital. Novo Banco was born in 2014 out of the healthy assets of Banco Esprito Santo (BES), the Portuguese bank that folded after central bank intervention. BES’s shares in the Angolan subsidiary of the bank, BESA, went into the ‘bad’ bank created in the aftermath, while Moza Banco at the time was deemed ‘good’ or healthy assets. Portuguese authorities have been attempting to sell Novo Banco before the European Commission’s August 2017 deadline. Late September reports have named China’s Minsheng Financial Holding Corporation Limited as an interested buyer, along with four other potential bidders.

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29 24/10/2016 11:17

TRAILBLAZERS

Customers can go to Zoona agent booths to send cash digitally for payments, loans and services across the country and across borders.

Inclusion through entrepreneurship The founders of Zoona, a Zambia-based fintech start-up, discuss how financial inclusion can grow through a personal approach

n the world of digital transactions, mobile operators have been king. Extensive networks and limited competition have helped telecoms’ mobile money services such as Safaricom and Airtel scale up so quickly that even banks cannot keep apace. However every technology has its limits, especially when it comes to financial inclusion and a cash-heavy culture.

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Zoona, started in 2009 by brothers Brad and Brett Magrath, seeks to remove the key hindrances to digital transactions—namely, the need for special products from mobile operators and banks. Through person-to-person (P2P) transactions carried out by Zoona agents, customers can send and receive money locally and internationally, as well as access other services like bill

payments and savings products. More importantly, Zoona’s agent-driven model means customers can go cash to digital with ease and without specific mobile money servers. First established in Zambia—where nearly 62 per cent of the population is unbanked, according to FinScope Zambia—the young company now operates in Malawi and Mozambique

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as well, in total serving more than 1.5 million customers through 1,500 agents. According to Zoona figures, its agents have processed more than $1 billion to date, bringing in revenues of over $10 million. Brad and Brett Magrath grew up between Zambia and Singapore while attending school in South Africa, giving them a scope of market experience that led to Zoona’s creation. “During this time, Asia was experiencing huge growth but both Zambia and South Africa were struggling and stagnant,” Brad, Zoona’s Chief People Officer, recalled. “We were both committed to starting a business that could grow and have a positive impact across Africa.” The spark happened in a late night discussion about giving rural farmers an easy, low-cost transaction tool. Zoona, which means ‘real’ in the local language Nyanja, was born. Zoona relies on selfstarting community members to become agents for the tool, eventually building a base of both clients and other agents supporting themselves with the business. “Africa has an enormous amount of untapped potential,” Brett, Chief Z (Innovation) Officer, said. “This is why we believe in investing in emerging entrepreneurs so that they can become sustainable business owners, and supporting them in such a way that their businesses flourish and help their communities thrive.” “We swim against the tide,” Brad said. “So many academics and industry experts have deemed the mobile wallet and MNOs [mobile network operators] as the only solution. We are not attached to any solution, MNO or bank—we are simply committed to our customer and their journey to financial inclusion.” Besides the relative freedom of P2P, over-the-counter transactions, a fundamental selling point for Zoona is that agents themselves can be entrepreneurs in control of how fast

In a predominately cash-based economy the human touch point is still key, says Brad Magrath, Chief People Officer.

Zoona wants to create one million jobs by 2020, Brett Magrath, Chief Z (Innovation) Officer, revealed.

they scale up and where they focus. It’s a very flexible, ‘choose your own fate’ system, which may be why, when asked what gap Zoona fills in the market, Brad answered, “the gap is we have no answers, only questions to ask, issues to understand and solutions to try, experiment, and then improve on.” He added, “In practice this translates to a business model where the consumer approaches our agents and receives a great service with minimal effort and maximum convenience.” The agency model has allowed Zoona to grow relatively quickly into rural communities, but as with any micro-business, Zoona agents can sometimes experience challenges. “We know that a business is not profitable from day one, and that this is one of the main obstacles to

entrepreneurship in Africa. To address this, Zoona has a STEP [support towards early profitability] model for new agents. This means that when agents sign up, we cover their working capital and operating expenses for up to 12 months or until their businesses become self-sufficient,” Brett said. The company also offers new and existing agents ‘Zoona Cash’ or instant liquidity for when the agents’ coffers run dry that can be paid back when deposits are made. The Magraths said this support is partly funded from Zoona’s own balance sheet, but the balance is also funded through the company’s partnership with crowdlending platform Kiva. Through Kiva, Zoona fundraises on behalf of its agents. “This gives other people the opportunity to h e l p f u n d an cont. overleaf

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TRAILBLAZERS

cont. from page 31

entrepreneur in Africa so that he or she can get their business off the ground,” Brett said.

GROWING ZOONA

When asked about Zoona’s plans for further outreach, Brett Magrath cited three ‘WIGs’ or ‘wildly important goals’ to reach by 2025: develop an ecosystem of products and services that improve the financial health and well-being of one billion people; unleash emerging entrepreneurs to build profitable enterprises that create one million jobs; and prove that a purpose-driven entrepreneurial business can be a global model for growth and impact. That is a tall order, but Zoona’s momentum has been growing. After a 2012 Series A investment of $4 million by Accion Global’s Quona Capital along with Omidyar and Lundin Foundation, Zoona announced in August 2016 that it has raised $15 million (ZAR 200 million) in its Series B round from the previous three and new investors the International Finance Corporation, 4Di Capital and former Google CFO Patrick Pichette. “There is a big opportunity for entrepreneurial start-ups that are customer-centric, agile and resilient enough to iterate problems to solutions faster than the incumbents. Banks are trying to play in this space and while they have seriously bright talent focusing on innovation, they are still big ships with high technical debt to pivot in a fast-paced changing environment. The MNOs, whilst having pockets of success, are still unproven,” Brad said. “Even in a digital world, the last mile counts and we believe in distribution and relationships being important key success factors over the next few years. In a predominately cash-based economy the human touch point and how well that works still counts as long as it can be serviced with trust, simplicity and business efficiencies,” he concluded.

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The Girl Effect and Zoona Between limited access to education and healthcare, cultural factors such as early marriage and childbirth, and challenges in the workplace, it has long been said that poverty is sexist—disproportionately impacting women and girls. Financial autonomy is an essential factor in this; FinScope Zambia found that roughly 42.6 per cent of women in the country had no access to financial services, compared to 38.8 per cent of men. A key differentiator for Zoona is its focus on empowering women through its business, or ‘the girl effect’. Chosen by Nike in November 2014 as one of 10 companies worldwide best-positioned to help lift women out of poverty, Zoona went to work on how to increase outreach, entrepreneurship and empowerment among women. Today, Lelemba Phiri, Chief Marketing Officer for Zoona, says that at least 45 per cent of Zoona agents are women, overseeing their own operations and staff of tellers, of which 60 per cent about 60 per cent are women. “The girl effect stipulates that the solution to eradicating poverty rests with empowering girls and women with education and entrepreneurial opportunity. At Zoona, we’re big believers and supporters of this theory. Women entrepreneurs are Africa’s most powerful untapped resource,” Phiri said. Empowering women has many business benefits as well. “Zoona’s own research and data has Zoona research shows that women are more financially disciplined shown that women that men, says Lelemba Phiri. entrepreneurs are more disciplined with money, keep regular hours and reinvest gains back into their business. Their businesses tend to grow and expand faster, creating a ripple effect of more jobs and more financial inclusion,” Phiri said. Zoona works with several women’s organisations to create a pipeline of future agents, and also has programmes in place to help create a route for women tellers to become agents in their own right. The effect is showing— Phiri tells the story of one agent, Misozi Mkandawire, who became a Zoona agent at 19 years old. “Today, she operates over 25 outlets, having created over 30 jobs and turning over more than $1 million in transactions every month. She is just one example of women across our markets who have taken advantage of this opportunity to achieve great things for themselves and their communities, and we’re thrilled to be a part of their success story,” Phiri said.

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11th Islamic Business & Finance

Awards 2016

Excellence through innovation Rewarding pioneers in Islamic finance

23rd November 2016 The Godolphin Ballroom, Emirates Towers Hotel, Dubai 7pm cocktail reception followed by dinner and the awards ceremony

SUPPORTED BY:

www.cpifinancial.net

For sponsorship and nominations opportunities please contact: Nap Estampador, Business Development Manager Tel: +971 4 391 4680 or Email: nap@cpifinancial.net bleed guide.indd 1

For other information please contact CPI Financialâ&#x20AC;&#x2122;s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net 07/09/2016 09:47

SECTOR FOCUS SME FINANCE

Funding the gap Small businesses make up a vast section of the economy, yet struggle to access finance— Michael Monari, CEO of Longitude Finance, discusses how to reduce lending risk and boost SMEs

here is a familiar cycle in discussions of financing for micro-, small- and medium-sized enterprises (MSMEs). Small businesses are engines of economic growth and need loans to grow; loans are readily available, but only to those with collateral and low risk—two rare factors in small businesses. Suddenly we are back where we started. It is possible that banks, limited by restrictive lending requirements, may not be the perfect vehicles for MSME finance. This at least is what Michael Monari, CEO of Longitude Finance, thinks. After years working for large commercial banks such as Ecobank, Monari embarked last year on the plan for Longitude Finance, a group that would specifically target business that

ordinarily have no collateral to access loans from a normal commercial bank. “Over the years, I have noted that businesses very low on the ladder— those that appreciate loans of low amounts and have no security nor proper records of their business—have always been ignored or rejected by mainstream banks,” he said, adding that these business often have the potential not only to repay the loans and grow their businesses, but also support their families and several employees. But how to ensure that the businesses you invest in will be those that succeed? In lieu of collateral, Longitude’s model is to ask borrowers to obtain at least three guarantors, one of whom must be a relative. Low tenors are also less than six months, lessening the risk usually associated with longer-held loans.

“The shorter the [loan] period the better, as it is easy to monitor progress and these customers are selling basic items that move quickly, i.e. fast moving commodities and goods [FMCG] that support day-to-day needs,” Monari said, adding that Longitude also offers micro-insurance products to further mitigate default risk. However another integral part of the Longitude Finance model has been business training, or a series of classes on topics from management to accounting that are designed to make businesses more sustainable. While the classes are open to any business, those with Longitude loans are particularly expected to be in attendance. “This is the gap that we are now focused on and the response is good,” Monari said.

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“Our SME training is free of charge and the aim is to ensure sustainability of the business, hence creating more job and eradicate poverty. “All businesses have to have a passion and a vision for what they want to do, why they are in business, and how far they want to grow. If these aspects are very clear in their minds, then the next step is to keep elementary records of sales and payments, and track the numbers well,” Monari said, adding that these records should be daily. These are basic requirements for loans, but also for small business success. To qualify to work with Longitude, businesses must also be in operation for at least six months and have the necessary trade licenses, similar to the requirements for other bank loans. Longitude also review factors such as supplier payments—mobile banking methods such as M-Pesa are quite popular—to ascertain a business’ cash movement and needs. “It is challenging, but we conduct interviews in which [we discuss] where these applicants want to take their business,” Monari said. Another critical factor in SME financing has been the credit reference bureau, first established in Kenya five years ago. The credit bureau—which is lacking in many other countries—can provide information on past and current banking obligations of each person involved in the business. “This helps us not to over burden their business with loan loads and establish character, as it is the most important element of lending. These measures, along with guarantors and micro-insurance, reduce risk element in lending,” Monari said. However Kenya is just one country with massive SME financing needs; in many African countries, small businesses are estimated to make up more than 90 per cent of the economy. With such vast demand for loans and capacity building, the question of whether banks can evolve to meet these needs has been growing.

Before starting Longitude Finance, Michael Monari had a long career in commercial banking.

“It is possible if banks make deliberate policies and efforts to focus on these businesses and offer relevant support that is required by these clientele. It is about understanding their needs and offering that need based support,” Monari said. For now, however, Longitude will be working to fill that gap. “Our medium- to long-term wish is to convert to an SME or small business people’s bank, deposit-taking and issuing loans,” Monari said, adding that several clients have requested savings products ‘for a rainy day’. “We want to reach as many SMEs as possible and offer them much-needed financial inclusion, or easy access to funding, not only grow their businesses but also so that they, in turn, employ people,” he said. “We would like to spread across the country—presently we are in Nairobi and Mombasa—and eventually the East Africa region. In the future, [we plan to go] across Sub Saharan Africa,” he said.

Businesses very low on the ladder—those that appreciate loans of low amounts and have no security nor proper records of their business—have always been ignored or rejected by mainstream banks. – Michael Monari, CEO of Longitude Finance

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SECTOR FOCUS CORPORATE

With Midcom’s African operations becoming so diversified, the conglomerate looked for a home base that could effectively oversee all operations—and that is Dubai, Kapoor said.

Building an empire Anand Kapoor, Founder and CEO of Midcom Group, tells the story of one Ugandan business’ growth into a multinational conglomerate spanning continents

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SECTOR FOCUS

ising from a solitary foreign exchange bureau in Uganda, Anand Kapoor’s Midcom Group now runs operations across six different industries in Africa and the Middle East. According to the company’s figures, its collective $1.2 billion business spans 17 countries across three continents, directly and indirectly employing more than 12,000 people. Midcom operates across commodities, real estate, consumer goods, forex and education, but it has been the telecommunications sector, and Midcom’s work distributing and manufacturing for Nokia and Samsung across the continent, that has given the conglomerate its regional powerhouse status. Now headquartered in Dubai, Midcom operations still span Africa. Kapoor, Founder and CEO, discusses the challenges of running varied businesses across continents—and what has led Midcom to success.

How did the idea for Midcom Group come about?

There was never one single idea for Midcom. I knew from the start I wanted to build an empire and to do that I had to be ready to take risks, I had to diversify my interests and I had to turn Midcom into something more than just the sum of its parts. Based on this philosophy, we’ve grown into such a diversified group operating in a variety of industries across 18 countries the company has taken on a life of its own. Beginning our early days as a forex exchange, we’ve since become the largest telecommunications distributor across East, Central and West Africa, a manufacturing company, an educator and the largest independent dairy processor in Uganda, among other business streams.

I would say the initial seeds of the idea that eventually became this hugely varied conglomerate began when I first moved to Uganda after university and saw the potential Africa had for development and growth. From there it was a matter of starting my first business and keeping my eyes open to create other opportunities in new sectors and markets.

What is the timeline from inception to date?

It was 18 years ago, in 1998, that I started my first business. Midcom came about 12 years ago as I started my journey in telecoms distribution as a distributor for Nokia. Since then we’ve steadily entered a new market or sector every year until 2009, when we first entered Nigeria. Because Nigeria is such

I had to diversify my interests and I had to turn Midcom into something more than just the sum of its parts. — Anand Kapoor

a large and complicated market we took our time there to properly establish a presence and build our distribution network, so it was a total of four years before we were comfortable moving into the next market. Since that time our growth strategy has remained constant.

What challenges or stumbling blocks did you encounter along the way and how did you overcome them?

It is not easy to setup and run a business in Africa. The lack of proper infrastructure, the bureaucracy, language barriers, lack of availability

of foreign exchange and lack of skilled labour are all everyday challenges. Many people give up and succumb to these persistent challenges. I did have my ups and downs too, however my constant perseverance and focus, support of my core team, a lot of bold steps at the right times and most importantly, the support of local governments and people helped us sail through all challenges. Today I can proudly say that Midcom masters the art of running numerous businesses across Sub Saharan Africa.

How did you break into the Middle Eastern market?

We learnt through trial and error how valuable basing ourselves in Dubai would be for our business. Our African operations were becoming so diversified. Remember, Africa isn’t one big country; every market is operating under its own laws, regulations, customs and infrastructure. We had to find a base of operations where we could effectively oversee the enterprise and its various components. The Middle East offers great infrastructure, the laws favour and encourage businesses, plus the excellent connectivity to all the African countries from here makes it even better. It wasn’t until 2004, when we first established a trading base in Dubai and entered the Middle East properly, that it quickly became apparent how much value the UAE had to offer our business. Our team on the ground here was able to guide African operations on the best products for our markets; being in such a connected, international market they had an insight into what consumers wanted that we did not have in Africa so we quickly began to design our strategy and product offering based on what was happening in the UAE. cont. overleaf

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SECTOR FOCUS CORPORATE

cont. from page 37

Today, we are one of the major traders in the Middle East, dealing with all the major brands and with a supplier and buyer base in over 20 countries.

What challenges did you face there? Again, how did you deal with them?

The Middle East business culture is very different to Africa. My experience in Africa played its part in preparing me for the Middle East market, but there were still a number of challenges. Firstly, we had to build relationships over time, whether with other players in the market, financial partners or other vendors. We had to overcome this hurdle, as we were an unknown quantity to begin with. We quickly realised these long-standing relationships play an integral role in doing business in the Middle East. We went about gradually building those relationships and over time, we grew to call them successful partnerships. However it doesn’t happen overnight and perseverance is very important.

Are there plans to expand across the Middle East? If so, where? How were the locations selected?

Yes, the Middle East offers immense opportunity. After getting very comfortable and well-established within Dubai, the company recently ventured into the Kingdom of Saudi Arabia [KSA]. Through our dairy products, we are aiming to be present throughout the region, where our primary focus markets will be UAE, KSA, Egypt and Oman. While we have been supplying a lot of dairy products into these markets previously, the majority of that was through B2B sales, whereas now we are actively implementing a consumer strategy for our products. Part of the strategy is appointing direct distributors in these markets, which is an ongoing process.

Midcom first broke into Nigeria with the telecoms sector, Kapoor said.

What opportunities does the Midcom Group offer in terms of job creation and business creation? Do they outsource to smaller companies?

Midcom currently employees more than 2,500 people directly and about 10,000 people indirectly. Midcom has generated huge employment for local African people through its manufacturing facilities in Uganda and Nigeria. In addition, Midcom has significantly improved the lifestyle of thousands of farmers and their families in Uganda, by ensuring every drop of milk they supply is bought by us at fair prices. We try and manage most of our work in-house, for which we hire a specialised workforce. Midcom’s strength is its employees. We have the best people, be it any field. However we do not shy away from outsourcing certain labour

intensive work. For instance, most of our everyday accounting and finance reporting is done by a small start-up based out of India.

What makes the Midcom Group special? How does it set itself apart in the market?

The average employee age in Midcom is 28. I believe in hiring young and energetic people, most of the time fresh out of college. Some people might see it as a means to save money, but for me it is all about seeing that zeal to achieve anything in an employee, the quality that we often refer to as ‘Midcom DNA’. Each of my employees is taken through a rigorous training process, which happens in an actual business environment. I give them enough room to fall and to rise again, to learn from their mistakes. These employees make the Midcom foundation stronger every day.

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20/10/2016 08:43

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TECHNOLOGY

Itâ&#x20AC;&#x2122;s time to wake up and smell the coffee Few banks in Africa have invested in specialist financial messaging development despite its competitive edge, writes Mick Fennell, General Manager Volante Technologies, Middle East & Africa

hese days any mention of blockchain, distributed Ledger technology, open APIs, real time payments, and/or digital channels will elicit keen interest from those involved in the banking world, and more specifically, in the fintech world. Each of these initiatives represents the possibility of major advances in our industry in terms of speed of processing, transparency of data, reduction in operating costs, as well as game changing improvements in consumer and corporate customer servicing. H o w e v e r, m e n t i o n f i n a n c i a l messaging in the same breath and most bankers or fintechs would look a bit puzzled. What has financial messaging got to do with these major shifts in our industry? In fact, the first question might even be, what exactly is financial messaging? The simple explanation is that every payment, domestic or international, single or bulk, every card transaction processed, every trade on an exchange, every electronic statement sent or received, every security settlement started and completed, every trade guarantee provided; each one of these transaction chains relies entirely on the exchange of information between counterparties and their systems and, that data exchange is

Financial messaging is the lifeblood of our industry, Volanteâ&#x20AC;&#x2122;s Mick Fennell says.

40 page 40-41 Tech 039.indd 40

www.bankerafrica.com

23/10/2016 14:32

through the sending and receiving of financial messages. Consequently, financial messaging is the lifeblood of our industry. Without support for financial messaging, incorporating the formatting, validating, enriching and orchestration of the messages and their standards, no financial institution could survive as a viable entity in the modern financial market. Such survival, and more importantly, real competitive success, is predicated on one’s ability to efficiently receive payment and transaction requests from customers, seamlessly clear and settle payments, rapidly trade on exchanges, send the relevant status updates to customers in the formats they demand, credit and debit their accounts in real time, move assets and funds between markets and portfolios. All of these processes are intrinsically based on financial messaging. Nor is the need to support such message processing diminishing with the arrival of services based on new innovative technologies such as blockchain, or open banking APIs, or multiple alternative digital channels. Instead, each of these new initiatives are creating an even bigger financial messaging challenge for all of the banks, a challenge which is already seen as a major headache for most organisations. That’s because, most current services in financial markets are based on agreed and openly published messaging standards, be it from a local, regional or domestic clearing or regulatory body. Standards such as ISO 20022, SWIFT MT, ISO 8583, FIX, FpML, SEPA, Fedwire, BACS, DTCC, Target2 etc, all fall under this umbrella. These financial messaging standards can change regularly and can have multiple variants that must be supported. It is a difficult challenge for every bank on the planet to keep up with these changes, on time and on budget and to support multiple

variants in multiple jurisdictions so that they remain compliant and competitive. Now we have to add into that ever-changing mix the torrent of new services that blockchain, open-banking APIs, real-time payments, alternative digital channels, etc. are creating. Every one of these new services are generating expanded requirements for financial messaging. Most are based on new proprietary formats, along with new API mechanisms, for sending and receiving the relevant formats.

Without support for financial messaging… no financial institution could survive as a viable entity in the modern financial market. How many banks across Africa are ready for this? Are your financial messaging capabilities sufficiently robust and agile enough to cope with these additional challenges? How quickly can your IT and business groups on-board new formats, new APIs, new messaging standards, be it from a new blockchain service, or a new corporate customer payment format, or a new real time clearing mechanism? Each of these needs creates the same fundamental financial messaging technical challenge, i.e. is it going to take one week, or two months, or six months, or over a year to enable your bank to process these services every time such requests hit the bank? The longer you take, the more likely it is that you will be saying goodbye to that market opportunity (or at least a part of that opportunity if you consider the ‘time to revenue’ element) or to that new or valued customer. So what is required? When are IT and operations groups in the region going to

wake up and smell the coffee? Now is the time to set their strategy for the future and, that strategy has to encompass the creation of a specialist financial messaging development capability. Unlike the banks in the major developed markets of the US and Europe, few if any banks in the African regions have so far invested in specialist financial messaging development and deployment technologies to address these challenges. In the developed markets it was understood a number of years ago that generic middlewares and integration infrastructures, along with vertically focused business solutions, are not the answer to the problem. Neither provide the breadth and depth of detailed message coverage required, and nor do they support the facilities required to accelerate the rollout of services to address constantly changing market requirements. Instead, specialist financial messaging development technologies provide the key that unlocks the competitive potential of the organisation across all processing areas of the bank. By creating a consistent, agile and universally deployable financial message development service within one’s environment, one can address the issues of quicker time to market and lower implementation fees for every one of these services that, at their heart, rely on the exchange and processing of financial messages. The good news for banks across Africa however, is that it’s not too late. However, the bad news is that the blockchain, open-banking API, realtime payments, and digital channels trains have all left their stations, and without actively seeking to enable your environments to consistently address the varied and changing messaging challenges that these innovations generate, you will miss these fast trains and end up metaphorically chasing after them, on foot.

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41 20/10/2016 08:44

TECHNOLOGY

Fintech and financial literacy Cards & Payments East Africa landed in Nairobi this September for a look at how technology can improve banking services in the region

he Cards & Payments East Africa event this year brought together hundreds of bankers and fintech professionals for two days of in-depth discussion and collaboration on the evergrowing intersection of two industries. “Hosted in Kenya, the ICT hub and gateway into East Africa, the events attracted over 900 attendees, from 60 countries and showcased 43 of the world’s most innovative banking and payments solution providers,” Joseph Ridley, General Manager at Terrapinn, the organisers of the conference, said. The conference kicked off with Jürg Müller, co-author of The End of Banking: Money, Credit, and the Digital Revolution, discussing whether banks even have a place in the fintech revolution. “Banking is no longer needed— tech allows for a new, better financial system,” he said, adding that the new digital age needs new regulatory rules. It was an interesting way to start the conversations that would ensue over the next two days, as banks clamoured

THE NUMBERS

949 attendees

42 page 42-43 Tech 039.indd 42

to discuss how they were transforming to meet customers’ needs and manage new expectations. Though banks’ main rivalries in Africa are often the telecommunications companies, it was other payments systems that stole the show at the panel discussions. WorldRemit, an online remittance service, was represented by Senior Mobile Analyst Alix Murphy, who spoke on peer-to-peer (P2P) disruptors of the financial sector. Meanwhile, fast-growing Zoona, an agency model for making payments that also relies on P2P (more on pg. 30 of this issue) was featured discussing the ways that fintech can not only ease payments in rural communities, but empower entrepreneurs in these areas. The bank CEO panel on the first day brought lively discussion of what role banks can play in today’s fintech-led world. Suleiman Asman, Kenya Country Director for Innovations for Poverty Action, moderated a discussion between Jeremy Awori, CEO of Barclays Bank Kenya; Mathias Katamba, Managing Director of the Ugandan Housing Finance

Bank; and Saugata Bandyopadhyay Deputy Managing Director of Customer Services at Tanzania’s CRDB Bank. Awori acknowledged the power in growing mobile services and technology-based banking, but said that what has kept the branch network in place has been the necessity of cash. Katamba agreed, saying that, “To a large extent, we need to look at financial inclusion from a much broader perspective; yes, technology increases access and some forms of inclusion, but we need to talk about financial literacy,” he said. “The jury’s still out on how much technology drives financial inclusion.” The bankers did concede that technological innovation has impacted banking in one significant way— data analytics. Awori called data analytics a “game changer” in banking. “Technology can make much more internal decisions at a quicker pace than humans can,” he said. Katamba agreed that data has been key, but emphasised his argument that

sponsors and exhibitors

countries represented

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(L-R) Mathias Katamba, Managing Director of the Ugandan Housing Finance Bank, Jeremy Awori, CEO of Barclays Bank Kenya, and Saugata Bandyopadhyay, Deputy Managing Director of Customer Services at Tanzania’s CRDB Bank, discuss banks’ roles in the new fintech space (CREDIT: TERRAPINN/FLICKR).

Samir Satchu, Founder of PesaZetu (L) and Lelemba Phiri, Chief Marketing Officer at Zoona (R) discuss fostering cross-border payments and lending (CREDIT: TERRAPINN/FLICKR).

more than technology is needed for consumer banking, particularly on the financial inclusion level. “We need to encourage banks themselves on financial literacy efforts,” he said. “It’s about social transformation… understanding the practice and not the principle itself is stagnation for growth.” “The financial landscape is going to change quite materially. Partnership will be key—right now, it’s telcos versus banks, but new agents can change that,” Awori said, referring to the potential for apps and digital services. Cards & Payments East Africa grew noticeably from the previous year, with the adjacent Future Bank and E-Commerce sessions both expanding into their own spaces and all-day sessions. Terrapinn reported a 30 per cent increase in attendees, a 48 per cent increase in sponsors and exhibitors, and a significantly broader scope of countries represented.

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43 20/10/2016 08:45

POLICY SPOTLIGHT

The Central Bank and Finance Ministry initiatives target even micro-businesses such as these fruit stalls on Bonny Island, Nigeria (CREDIT: ANGELA N PERRYMAN/SHUTTERSTOCK).

In recession, Nigeria looks to SMEs Nigeria’s new development bank specifically targeting SMEs joins a host of other initiatives to support small business growth in tough economic times

t the sidelines of the World Bank-IMF annual meeting in October, Nigerian authorities announced the establishment of a new development bank with initial capital of $1.3 billion from the World Bank, African Development Bank and European Investment Bank. In a joint press briefing at the annual meeting site in Washington D.C., Minister of Finance Kemi Adeosun and Central Bank Governor Godwin Emefiele said that the new Development Bank of Nigeria (DBN) would specifically focus on small businesses, differentiating it from other banks in the market. “The focus of DBN is SMEs and giving them low-cost loans,” Adeosun

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23/10/2016 14:58

said. “We need to get the money into the hands of smaller business that make 50 per cent of our GDP,” she said. She said that the bank is now ready to ‘take off’, as soon as the last step, appointing a managing director, is completed. Increasingly, SMEs are being seen as the remedy for recession in Nigeria. The economy is officially in recession after two quarters of contraction, the naira went into freefall this summer after being floated, oil production and profit is down, and banks and large corporates are struggling to make a profit in the current climate. Meanwhile, as in many African countries, SMEs account for a vast majority of local business in the country. According to the World Bank in August of this year, there were roughly 37 million micro-, small-, and medium-sized enterprises (MSMEs) operating in Nigeria. Magnus Nmonwu, West Africa Regional Director for payroll and payments company Sage, said that Nigerian businesses and entrepreneurs could lift the economy out of recession, given the right support and business environment. “Nigerian entrepreneurs and business owners are the engines that drive the country’s economy,” Nmonwu said. “During recessions, big companies are able to adjust by downsizing and cutting costs. Small businesses, however, keep going and carry the losses. They need our support, as they can contribute to turning the economy around, far more quickly. Yet Nmonwu, and many others in the entrepreneurs and SME space, see a threat on the horizon—the Communication Service Tax (CST) Bill currently being debated in the National Assembly. If passed, all consumers of mobile services—from voice to data, SMS and MMS—would bear a new nine per cent tax on their existing tariffs. As Nmonwu pointed out, this is on top of a host of other taxes, including

five per cent VAT, 12 per cent import duties on ICT devices, and 20 per cent SIM card taxation. The Alliance for Affordable Internet, Nigeria Coalition, estimates that the tax could prevent more than 50 million Nigerians from affording a basic broadband connection. “Nigerian entrepreneurs depend on their mobile phones and the internet to run their businesses,” Nmonwu said. “The tax could potentially raise the cost of doing business and hold back Nigeria’s integration into the global digital economy by excluding people from broadband access.”

We need to get the money into the hands of smaller business that make 50 per cent of our GDP.

— Nigeria Minister of Finance Kemi Adeosun

Instead, Nmonwu said that emphasis should be placed on creating tax revenues through an amnesty programme, for instance, that would encourage small businesses that have not previously complied with tax law to come into the fold. He also called for more sources of funding for SMEs—a gap the DBN seeks to fill.

THE LONG GAME TOWARDS SME SUPPORT

In the Central Bank of Nigeria’s policy guidelines for 2016-2017, released this summer, the Bank outlined several initiatives for SME growth in the year ahead. One of the most significant new projects will be the National Collateral Registry, a public database that will function as a credit bureau, with information on ownership of assets. The ability to provide evidence of movable collateral will greatly facilitate SMEs

getting loans, as this has historically been an issue in lack of finance. CBN hopes the widespread use of collateral will also improve the liquidity of assets, reduce banks’ non-performing loans portfolio, increase financial services competition and enable regulators to better analyse portfolio risks. The SME initiatives include the NGN 300 billion ($953 million at the current exchange rate) Real Sector Support Facility (RSSF) targeting manufacturing, agricultural value chain and some service sector businesses that are looking to expand. Then there is also the NGN 200 billion ($635 million) SMEs Credit Guarantee Scheme (SMECGS), established to encourage banks to lend to the productive sectors of the economy by providing 80 per cent guarantee on loans granted by banks to SMEs and manufacturers. Similarly, there is the NGN 200 billion Commercial Agriculture Credit Scheme (CACS) that has shown enough success to be extended to 2025. The scheme focuses on the financing of large ticket projects along the agricultural value chain, administered at nine per cent rate of interest to beneficiaries. According to the CBN, from January 2015 60 per cent of the Fund has been dedicated to the promotion of seven focal commodities— rice, wheat, oil palm, fish, sugar, cotton and dairy—that contribute significantly to the nation’s agricultural import bill. Finally, there is a NGN 220 billion Micro-, Small- and Medium-Sized Enterprises Development Fund (MSMEDF), established in August 2013 to provide wholesale as well as liquidity support for microfinance banks and institutions for on-lending to MSMEs. According to the CBN, 60 per cent of the Fund is devoted to women entrepreneurs while two per cent has been earmarked for persons living with disabilities and 10.0 per cent for start-ups. The CBN said that it will sustain the Fund through the next programme period.

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45 24/10/2016 11:12

INVESTMENTS

A reality check and resurge in confidence The third annual Africa Legal Network conference in Dubai discussed realistic expectations for investment—and an optimistic outlook for growth

(L-R) Gbolahan Elias moderates the kick-off discussion between Chairman of ALN and former Malian Prime Minister Dr. Cheick Modibo Diarra; Former US Assistant Secretary of State for African Affairs and Managing Director AFEX Dr. Jendayi Frazer; Mara Group Founder Ashish Thakkar and Managing Director of Shonibare Consulting Olawale Shonibare.

he current global economic climate and its corresponding challenges in Africa have not dampened investor interest, according to Atiq and Karim Anjarwalla, co-hosts through their respective law firms of the third annual Africa Legal Network (ALN) conference held in Dubai this October. At i q , M a n a g i n g Pa r t n e r o f Dubai-based Anjarwalla, Collins & Haidermota, and Karim, Board member

of ALN and Managing Partner of Anjarwalla & Khanna, the largest firm in the ALN alliance, were joined by Amyn Mussa, a Partner at Anjarwalla & Khanna, to discuss the investor outlook on Africa following the two-day conference, ‘Bridging the Gulf’. “We never really believed that the Africa story is as good as people thought, nor do we now believe that it is as bad as people fear,” Karim said. “[We’re seeing] a much deeper understanding

of the differences between the countries and the regions, and strengthens and weakness of each, rather than a holistic— and therefore frankly less intelligent— view of the continent as a whole.” Mussa, who moderated a panel on ‘bridging the finance gap’ just before our chat, noted that while the commodities downturn has been rough on exporters such as Nigeria and Zambia, it has significantly benefitted fast-growing importers in East Africa.

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20/10/2016 14:07

“I think those people who thought the commodities boom was going to go on forever clearly didn’t understand and appreciate long-term risk,” Mussa said. Atiq emphasised the point that all investors, whether in commodities or elsewhere, had to take a long-term view with Africa. “If you look at Nigeria…people who are long-term players know that it is over 100 million people, and it’s a

& Company’s regional outlook report Lions on the move II: Realizing the potential of Africa’s economies presented at the conference. The report recognised that several distinct economic trends were occurring in the region (more on pg. 20, this issue) but that overall the investment opportunity in the region is still vast, particularly in manufacturing and consumer-oriented business. According to the report,

HE Sheikh Nahyan bin Mubarak Al Nahyan delivering his keynote address at ALN 2016.

country that will survive. If you have a short-term investment vision then clearly, it’s not the sort of place for you to be. But if you have a long-term investment vision, people are going to ride out the storm like they have in many countries.” And in truth, bad times can mean good opportunities for eagle-eyed investors, many of whom were at the ALN conference. “Where there’s value destruction for one party and there’s value creation for another. And you’ll begin to see that rebound now I think,” Karim said. This view was reflected in McKinsey

We never really believed that the Africa story is as good as people thought, nor do we now believe that it is as bad as people fear, —K arim Anjarwalla, Managing Partner at Anjarwalla & Khanna

household consumption is expected to grow at 3.8 per cent a year to a total of $2.1 trillion by 2025. Additionally, with an improved business environment, Africa could also nearly double its manufacturing output from $500 billion today to $930 billion by 2025. The ALN conference grew this year to include 300 bankers, investors and legal advisors across Africa, the Gulf and Asia. The inaugural panel featured Chairman of ALN and former Malian Prime Minister Dr. Cheick Modibo Diarra; Former US Assistant Secretary of State for African Affairs and Managing Director AFEX Dr. Jendayi Frazer and Mara Group Founder Ashish Thakkar. “Africa is a lion ready to come out of its den and when it does, the world will be a better place because of it. The continent is on a strong growth trajectory and presents the investment community a myriad of opportunities to tap into,” Dr. Diarra said. In his keynote address, Guest of Honour HE Sheikh Nahyan bin Mubarak Al Nahyan, UAE Minister of Culture, Youth, and Social Development said, “Trade between the UAE and Africa requires a high level of transparency and hard work. I am confident that this conference will inspire thoughtful debate and I look forward to discussions on how to obtain more integration between Africa and the Gulf.” As the conference wound down, the Anjarwallas said they were impressed with the level of speakers and attendees and the substantive discussion that they brought with them. “Because we are involved with bussing people on the ground, [at this conference] there are very hard issues that are discussed; we’re not here to make people feel good. Where there are problems, people will talk about it very openly, and that’s great for the audience,” Atiq said.

www.bankerafrica.com

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47 23/10/2016 14:39

OUTLOOK

Outward expansion increasing risk for Moroccan banks Morocco’s largest banks have grown steadily into the regional market, reaping large profits but potentially boosting credit risk

An Attijariwafa branch in Frankfurt, one of the bank’s increasing international operations (CREDIT: CHRIS KOOT/FLICKR).

n 4 October, Attijariwafa Bank announced a coup on the acquisition front—an agreement with Barclays Bank Plc for 100 per cent of the share capital of Barclays Egypt, for an undisclosed amount, although Reuters reported sources pricing it at $400 million.

48 page 48-49 Outlook039.indd 48

Barclays Egypt posted net income of EGP 1.517 billion ($169 million) and net income of EGP 606 million ($67.97 million) in 2015. Its total assets and shareholders’ equity amounted EGP 20.2 billion ($2.26 billion) and EGP 3.4 billion ($381 million) respectively as of 31 December 2015.

“The Egyptian economy and banking sector offer significant growth prospects in the medium and long term. Barclays Bank Egypt, thanks to its positioning, highly talented management and motivated workforce, strong capitalisation and clean balance sheet, is the ideal platform to roll out Attijariwafa bank’s universal banking model in Egypt,” Mohamed El Kettani, Chairman and CEO of Attijariwafa, said. “This transaction will allow Attijariwafa Bank to contribute to further economic integration between Egypt and our countries of presence in Maghreb, Western and Central Africa. It will also offer Attijariwafa bank a unique opportunity for further development in the Middle East and Eastern Africa,” he added. As Kettani mentioned, Attijariwafa is currently present in 25 countries and soon to be another. On 19 October it announced an additional acquisition, a 75 per cent stake in Rwanda’s Cogebanque, in a $41 million deal according to the Rwandan President’s office. Overall, the Attijariwafa Group reported total assets of $42.6 billion and shareholders’ equity of $4.2 billion as of 30 June 2016. In 2015, it recorded net banking income of $1.9 billion and net income of $535 million. The Bank is currently listed on the Casablanca Stock Exchange with a market capitalisation of $7.4 billion as of 30 September 2016.

www.bankerafrica.com

23/10/2016 14:43

two per cent global Moody’s average, and supported by lower cost of funds,” Panis said. The ratings agency indicated that this, combined with the expectation of a modest growth in riskweighted assets, will contribute to the stability of moderate capital buffer, with a reported Tier 1 ratio at 11.8 per cent. It also said that banks will further benefit from a continued stable funding base, which is 65 per cent sourced from deposits, and liquid banking assets that Moody’s estimates at 27.3 per cent—including government securities—and well above Basel III liquidity requirements. In a 7 October statement reaffirming Morocco’s ratings at ‘BBB-/A-3’, Standard & Poor’s (S&P) also cited the three big banks’ 20 per cent outside lending as a potential risk. “While we consider regulatory standards in Morocco to be generally conservative, Moroccan banks are still exposed to cyclical sectors [such as] steelworks, tourism, commercial real estate, and construction.

Thus, we consider that economic risks for the Moroccan banking sector remain high in a global comparison. We also assess the system’s risk appetite as aggressive, given the rapid expansion of Moroccan banks, including in higher risk African countries,” S&P said in its report. The ratings agency also noted agricultural volatility and the role it could play in future projections, not just for the economy but credit risk as well. Morocco is highly dependent on the agriculture sector, to the point that most of the drop in GDP growth this year (expected to be 1.6 per cent in 2016; averaged four per cent over the five previous years) can largely be attributed to weak cereal harvests this season. However Morocco is quickly diversifying, most noticeably in the automotive sector, which has brought in consistent FDI. With rapid regional expansion, its large financial institutions are primed to capture the multinational business beginning to trickle through Morocco’s door.

SUB-SAHARAN AFRICA DOMINATES BANK’S FOREIGN LOAN BOOKS

SUB -SAHARAN AFRICA DOMINATES BANKS’ FOREIGN LOAN BOOKS

AWB

BCP

77.8% 77.4%

2015

BMCE

Sources: Attijariwafa Bank, Banque Centrale Populaire, BMCE Bank financial data Source: Attijariwafa Bank, Banque Centrale Populaire, BMCE Bank financial data; Moodys Investor Services

www.bankerafrica.com

page 48-49 Outlook039.indd 49

2014

74% 73.7% 73.7%

2013

88.1%

89.3%

23.9% 24.2% 21.4% 24.2% 20.4%

2012

2015

2014

2013

2012

50,000

81.8% 81.2% 80.5% 79.8% 77.3%

2011

100,000

98.6% 93.2% 90.5%

Europe

2011

150,000

10.6% 8.3% 9.7% 5.2% 0.2%

2015

11.8%

2014

9.7%

2013

200,000

7.5% 8.1% 7.8% 7.4% 12.2% 8.3% 9.8% 14.5%

Tunisia

2012

250,000

Sub-Saharan Africa

2011

Morocco 300,000

(in thousand of MAD)

Moroccan banks such as Attijariwafa are coming from a relatively stable operating environment, certainly compared to many of their North African neighbours. Yet with aggressive outward expansion by several of the country’s largest banks, elevated risk is a natural side effect. For the three biggest banks—Attijariwafa, Banque Central Populaire (BCP) and Banque Marocaine du Commerce Extérieur (BMCE)–their combined cross-border exposure accounted for 20 per cent of total assets in 2015. In a 21 September report on the sector, Moody’s Investor Services said that Moroccan banks are facing high credit risks, but the country’s sound economy and the banks’ stable funding and resilient profitability metrics are helping to stabilise their credit profiles. “Non-performing loans [NPLs] for Moroccan banks have increased to 7.7 per cent of gross loans as of Q1 2016, but we expect them to stabilise,” Olivier Panis, Moody’s Vice President and Senior Credit Officer, said. “Retail sector NPLs have already stabilised at around 8.1 per cent as of Q1 2016 and reducing share of doubtful and watchlist loans points to a slowing trend in NPL formation.” Moody’s also highlighted efforts by the Moroccan central bank, Bank al-Maghrib, to curb potential expansion risk, including prudential guidance and supervisory colleges for banks with significant exposure to Sub Saharan Africa (most of Attijariwafa’s Africa operations are in the West African region.) Moody’s expects Moroccan banks’ profitability to remain stable, or even improve, from their recent levels over the next 12 to 18 months, which will contribute to support growth while conserving capital. “We expect that Moroccan banks will continue posting high net interest margins [NIMs] of around 3.5 per cent, well above the

49 23/10/2016 14:43

THE VIEW PICTURE OF THE MONTH

(Top row, L-R) Narendra Modi, Prime Minister of India, Xi Jinping, President of China, and Jacob Zuma, President of South Africa, convened in India for the 8th BRICS Summit, during which the country leaders, along with Brazilian and Russian leadership, signed agreements on diplomatic, environmental, customs and agricultural cooperation.

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INVESTMENTS

Dubai Technology and Media

PLUS: 18 MARKETS

Free Zone Authority

Striking a balance

Bank of Tanzania Governor Benno Ndulu

COUNTRY

Cameroon—lynchpin of stability?

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