#43 - April 2017

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ISSUE 43 | APRIL 2017

Emirates NBD’s international expansion into Egypt Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

Full details at: www.bankerafrica.com

Dubai Technology and Media Free Zone Authority

ISSUE 43 | APRIL 2017

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

Emirates NBD’s international expansion into Egypt Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

A CPI Financial Publication

PLUS: 14 OPINION How far are banks being truly transforma ve?

BA bleed guide.indd 1

32

SECTOR FOCUS

Africa’s divergent real estate markets

42

TRAILBLAZERS

Clean, mobile, secure 27/04/2017 11:47

UGANDA

Tanzania

Your Bank. Your Future.

Banki Yawe. Ejo Heza.

Nyagatare

DEMOCRATIC REPUBLIC OF CONGO

The Largest Banking Network in Rwanda

Musanze

NORTHERN PROVINCE

Burera

Gatsibo

Nyabihu

Rubavu

Gicumbi

Gakenke

Rulindo

EASTERN PROVINCE Gasabo

Ngororero

Rutsiro

WESTERN PROVINCE

Kayonza

Muhanga

Nyarugenge Kamonyi

Rwamagana

Kicukiro

Karongi Ngoma

Ruhango

SOUTHERN Nyanza PROVINCE

193, Branches countrywide

Bugesera

Kirehe

Nyamasheke Nyamagabe

105+ ATMs countrywide More than 150,000 Debit card holders

Huye Rusizi

Over 250,000 Mobile banking users 500 Mobile app users

Tanzania

Gisagara Nyaruguru

BURUNDI

Access to more capital for your business.

Your Bank. Your Future.

Banki Yawe. Ejo Heza. www.bpr.rw BA bleed guide.indd 1

25/04/2017 09:43

CONTENTS

ISSUE 43 | APRIL 2017

10

14

20 IN THE NEWS 6 News analysis: South African uncertainty strengthened

7

Essential financial news from around the continent

10

Spotlight: Senegal

HAPPENINGS 12 Egyptian economic reforms

highlighted at SWIFT Business Forum Egypt

13

Zimbabwe to use livestock as collateral

OPINION 14 How far are banks being truly

transformative?

Banks need to understand what a digital bank is in order to become one, says Peter Redshaw, Managing Vice President Gartner: Banking & Investment Services Global Research

Editor’s Letter

H

ello and welcome to the April issue of Banker Africa. It’s been a tumultuous month for our colleagues in South Africa with the surprise dismissal of Pravin Gordhan, the now former Finance Minister, and his Deputy Mcebisi Jonas. The rand swung violently with the news and the country now faces junk status from various rating agencies, you can see our coverage of this on page 6.

We at Banker Africa are also currently in full preparation for the announcement of the results from our East Africa Awards. At the time of writing voting is still ongoing, but I look forward to meeting all of those involved at our gala dinner on the 18 May 2017 in Nairobi. Further information about the event is on page 38 and online at our website.

This month our country focus turns to Egypt, found on page 24. The country is still coming to terms with its newly free-floating exchange rate which began in November of last year as part of a series of reforms from both the Government and the Central Bank of Egypt. These reforms have been welcomed by both the international organisations, such as the IMF, and rating agencies that have upped their outlook on the North African country. The trend here is a brighter outlook in the future, but painful reforms still need to take place.

Finally for our Trailblazer section we spoke with a South African start-up focused on creating safe electricity in rural areas where it was previously impossible to do so. This innovative idea involves a retrofitted shipping container, solar panels and a passion for the green economy—find the full story on page 40.

Until our next issue,

Explore what banking could be Trusted mobile app security and authentication solutions

Matthew Amlôt entersekt.com www.bankerafrica.com

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3 27/04/2017 08:56

CONTENTS

ISSUE 43 | APRIL 2017

MARKETS 16 A commodity bull market

coming in 2017?

After commodity prices bottomed in early 2016, demand is outstripping supply once again, suggesting the next bull market may be approaching, writes David Donora, Head of Commodities, Columbia Threadneedle Investments

In an exclusive interview with Banker Africa, Giel Jan M. Van Der Tol, CEO, Emirates NBD Egypt, laid out the bank’s ambitious strategy moving forward

Egypt has remained a challenging environment for the past few years, but in the face of the authorities’ willingness to implement reforms increasing optimism can be found

Banks will need to work with payment service providers, rather than trying to take them head-on says Gerhard Oosthuizen, Chief Information Officer, Entersekt

46 Payment management in the

In the second part of our interview with Efosa Ojomo, Global Prosperity Researcher at the Clayton Christensen Institute for Disruptive Innovation, he detailed how the perception of Africa by investors needs to change

21st century—it’s time to change the back office

The focus of banks on improving frontend digital offerings has left the bank office lacking, says Mick Fennell, Vice President, MEA, Volante Technologies

INVESTMENTS 48 Investing in leasing for Seychelles

SECTOR FOCUS: REAL ESTATE 32 Africa’s divergent real

Jamii Africa is looking to change the landscape insurance landscape with its innovative micro-health insurance product

TECHNOLOGY 44 Playing the long game in payments

CASE STUDY 30 Changing mind sets

Despite challenges, East Africa continues to shine

TRAILBLAZERS 42 Clean, mobile, secure

Egypt expansion

COUNTRY FOCUS: EGYPT 24 Egypt: no pain, no gain

Creating new economic opportunities for young Africans is key to securing growth on the continent, says the Mo Ibrahim Foundation in a new report

40 East Africa trumps drought

COVER STORY 20 Emirates NBD’s international

www.bankerafrica.com

OUTLOOK 38 Africa’s growing pains

A two-day forum held in Seychelles focused on improving the leasing sector in Seychelles

estate markets

In a new report Knight Frank outlines the property opportunities across the African continent

THE VIEW 50 Photo and survey of the month

AWARDS 36 Banker Africa—East Africa Banking

www.bankerafrica.com

Business Development, Banker Africa SIMON MOTWALI simon.motwali@cpifinancial.net +971 4 4335321

JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024 NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726 London Bureau ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476

Business Development DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 NIKHIL NIDHAN nikhil@cpifinancial.net Tel: +971 4 391 3717 MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320

Contributors PETER REDSHAW, GERHARD OOSTHUIZEN, MICK FENNELL, DAVID DONORA 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

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and Media

Dubai Technology

NBD Egypt

SECTOR FOCUS

42

Der Tol,

Covering the underserved

PLUS: 14 OPINION How far are 20/03/2017 11:39 banks being BA bleed

Dubai Technology

into Egyp nsion t

TRAILBLAZERS Publication

West Africa’s digital future

A CPI Financial

Publication

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40

Authority

Emirates

PLUS: 16 OPINION Driving financial inclusion in Africa

19/02/2017 16:05

guide.indd

1

truly transfor ma ve?

32

CEO, Emi rates NBD Egypt

SECTOR

FOCUS Africa’s divergen t real estate

markets

42

TRAIL

BLAZE Clean, mobile, RS secure 08:50

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

page 3-4 contents 043.indd 4

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

Free Zone

Dubai Technology and Media Free Zone Authority

Zone Authority

Tol, CEO,

and Media Free

M. Van Der

Think pink

Em

Giel-Jan M. Van

27/04/2017

4

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

Giel-Jan

TRAILBLAZERS

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

HE Ahmed Osman, Governor, Central Bank of Djibou

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A CPI Financial

environment

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44

Editor, Banker Africa MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

into Egypt

Bank

Changing opera ng for SSA banks

The African Islamic experience

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l expansion

Africa Reserve

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EDITORIAL editorial@cpifinancial.net

NBD’s internationa

Governor, South

34

OPINION

2017

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irates NBD ’s Progress: positive international ex pa

Lesetja Kganya

PLUS: 14

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

Emirates

Lesetja Kganyago,

Progress: positive HE Ahmed Osman, Governor, Central Bank of Djibou

Renewed optimism

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Awards 2017 shortlist announced

A panel of judges has revealed the shortlist for the third annual Banker Africa—East Africa Banking Awards

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16/02/2017 18:00

NEWS ANALYSIS

South African uncertainty strengthened In a move that surprised international observers and investors, South Africa’s President Zuma removed Finance Minister Pravin Gordhan from his position, prompting widespread criticism

(L-R) Former Deputy Finance Minister Mcebisi Jonas, Deputy President Cyril Ramaphosa, President Jacob Zuma and former Finance Minister Pravin Gordhan earlier this year at the announcement of the 2017 budget (CREDIT: GCIS/GOVERNMENTZA/FLICKR).

I

n a cabinet shuffle conducted at the end of March President Zuma of South Africa replaced Pravin Gordhan, the now erstwhile South African Finance Minister, and his Deputy Minister Mcebisi Jonas making the fourth change in Finance Minister under President Jacob Zuma. The move hit South Africa hard in the markets, with the rand tumbling.

Gordhan had previously received recognition for fending off a downgrade by ratings agencies to junk status in late 2016. In contrast to President Zuma, Gordhan had championed policies to both curb spending and government debt, a move welcomed by international investors and ratings agencies.

6 page 6 News Analysis 043.indd 6

President Zuma has since faced widespread criticism for the removal of Gordhan, a move which has been characterised as an attempt by Zuma to pack the cabinet with supporters to ensure his ability to pick a successor as leader of the African National Congress (ANC) in December, and as President in 2019. South Africa’s main opposition parties all opposed the move, as well as Cyril Ramaphosa, Deputy President, and the communist partners of the ANC coalition government.

The departure of Gordhan led to an unscheduled review of South Africa’s rating

by Fitch and S&P which both lowered their respective ratings on South Africa’s currency. In a statement S&P said, “In our opinion, the executive changes initiated by

President Zuma have put at risk fiscal and growth outcomes… The negative outlook reflects our view that political risks will remain elevated this year, and that policy shifts are likely, which could undermine fiscal and economic growth outcomes more than we currently project.”

The effect of South Africa receiving junk status cannot be understated. Junk status increases the cost of borrowing for the government, as well as removing South Africa from indexes, meaning less funding inflows for the country. J.P. Morgan has already stated that it will remove South Africa from its investment-grade emerging market bond indexes starting in late April.

For reference, these indexes are tracked by some $59 billion of funds.

The ANC has not seen divisions like this in its history. There are suggestions that the party may split, or potentially fail to maintain its majority, currently commanding 249 seats of the 400-member parliament. Writing in The Conversation, Richard Calland, Associate Professor in Public Law, University of Cape Town, noted that this may not be a bad thing in the long run.

President Zuma has continued to astonish international observers by failing to conform to the normal rules of governing. The sacking of Gordhan, despite widespread support for the former Finance Minister, may simply be seen as the latest in a series of alarming moves made by Zuma since he assumed leadership of the ANC in December 2007.

“Caused by a crisis in political leadership, Zuma’s ruthless display of power could prompt an economic crisis that could easily send South Africa into a Brazil-style downward spiral whose consequences are impossible to predict,” added Calland.

www.bankerafrica.com

27/04/2017 11:43

IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES S&P has lowered their ratings of 100 per cent government power utility Eskom Holding SOC to ‘B+’ with a negative outlook.

S&P believes that although the company is extremely likely to receive government support should it need it, so the government’s ability to do has weakened.

SOVEREIGNS S&P has affirmed its ‘BBB-/A-3’ long and short-term foreign and local currency sovereign credit ratings on the Kingdom of Morocco. The outlook for these ratings is stable. The agency predicts that Morocco’s real growth will rebound markedly to 3.5 per cent this year after significant slowdown in 2016.

ON THE RECORD SCI to expand opportunities for UAE investors in Angola

The Chairman of the Sharjah Chamber Commerce and Industry recently welcomed the Minister of Economy of the Republic of Angola with the aim of bringing about closer cooperation between the two parties.

Trend in SA-investors looking to multi asset portfolios as offshore option

In the face of political turmoil and volatility in South Africa’s banking sector, bond and currency markets, PineBridge Investments suggests that investing offshore is an increasingly attractive option.

EUR 24 million to develop innovative projects and boost electrification in Africa

AFD Group, in partnership with the European Union, has unveiled the African Renewable Energy Scale-Up Facility, which is designed to boost private sector investment in on-grid and off-grid renewable energy production in Africa.

Big data and analytics spending in MEA to reach $2.2 billion in 2017

International Data Corporation (IDC) expects to see regional growth of 11 per cent in 2017 to reach $2.2 billion in the big data and analytics sector.

Moody’s has affirmed the ‘B1’ long-term issuer and senior unsecured ratings of the Government of Angola with a negative outlook. The agency noted that the short-term issuer ratings remain unchanged at Not Prime.

S&P has lowered its long-term foreign currency sovereign credit rating of South Africa to ‘BB+’ down from ‘BBB-’ and the long-term local currency rating to ‘BBB-’ from ‘BBB’ based on political and institutional uncertainty with a negative outlook.

Support must be provided for mass development of renewable energy technologies in order to meet Africa’s increasing energy requirements, said IDC (CREDIT: SCANRAIL1/SHUTTERSTOCK).

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7 24/04/2017 14:29

IN THE NEWS

A QUICK WORD

I strongly welcome the proposed compacts between African and G20 countries to build capacity and unlock investment flows.

— Christine Lagarde, Managing Director, IMF at the conclusion of the G20 Finance Ministers and Central Bank Governors Meeting in Germany.

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

IMF Executive Board approves $151.03 million under the ECF Arrangement for Benin

T

he Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement under the Extended Credit Facility (ECF) for Benin for an amount equivalent to about $151.03 million, or 90 per cent of Benin’s quota, to support the country’s economic The ECF is aimed at bringing about inclusive growth, and financial reform programme.

This new programme aims reducing poverty and improving infrastructure and social spending (CREDIT: JIRI FLOGEL/SHUTTERSTOCK). to address Benin’s protracted balance of payments needs, and alleviate the impediments to inclusive growth, and poverty reduction by creating fiscal space for infrastructure investment and priority social spending. It is also aimed at helping to catalyse official and private financing and build resilience to future economic shocks. The Executive Board’s decision will enable an immediate disbursement of $21.58 million.

The remaining amounts will be phased over the duration of the programme, subject to semi-annual reviews.

UBA promotes 3,000 staff

United Bank of Africa (UBA) has announced the promotion of 3,000 members of its staff.

In a letter written on 3 April 2017 to Group staff by CEO, Kennedy Uzoka, said, “Since my recent appointment as GMD/CEO, one of my priorities has been to address the needs of our people. I strongly believe that if we take care of our people, our people will take care of our customers—our ultimate employers.”

“Investment in our human capital is critical to our success. It is a product of our ability to invest for the long term and create an institution that is built to last. It is the bedrock of our determination to be Africa’s leading customer focused bank.”

Uzoka also unveiled a new Workforce Model and an extension of the existing Group car loan to a previously ineligible 1,000 staff. These changes were in response to staff feedback via survey, said the bank in a statement.

8 page 7-9 In the News 043.indd 8

IMF staff complete mission to Chad An International Monetary Fund (IMF) staff team led by Said Bakhache visited N’Djamena from 22 March—4 April 2017 to assess recent economic developments in Chad and performance under the current financial and economic programme supported by the IMF’s Extended Credit Facility (ECF) approved in August 2014. Discussions were also held on the government’s interest in a new programme.

At the conclusion of the mission, Bakhache issued a statement, “Economic activity continues to be strongly affected by two external shocks: the sharp and persistent decline in oil prices and regional security challenges. These, together with high external debt service burden from commercial debt, have put significant strains on budgetary resources.

Sharp reduction in government expenditures, together with significant investment cuts and layoffs by oil companies, has had strong spillover on the rest of the economy.”

Uber and Old Mutual extend money management course for drivers Uber and Old Mutual have announced that they will be extending the free money management course that took place in South Africa to its driver-partners in Accra, (Ghana), Lagos (Nigeria) and Nairobi, (Kenya).

The Old Mutual ‘On the Money’ workshops are free to Uber driver-partners in Kenya, Nigeria and Ghana. Old Mutual aims to increase understanding of basic money principles develop healthy savings habits and promote a plan towards financial wellbeing. The workshops were previously run in partnership with Uber in South Africa.

John Manyike, Head of Financial Education at Old Mutual, said, “Small businesses are key to driving inclusive economic growth in Africa—and their success will ultimately benefit us all. By extending this partnership with Uber across Africa, we are able to further promote financial fitness across the continent.”

www.bankerafrica.com

26/04/2017 15:44

Lives and Livelihoods Fund approves $243 million for antipoverty projects in support of eight countries

D

uring the second meeting of the LLF Impact Committee in Riyadh, a pipeline of $242.6 million was approved for financing for health, agriculture, and rural infrastructure development projects for 2017. Representatives from Saudi Arabia, Qatar, UAE, the Bill & Melinda Gates Foundation, the Islamic Solidarity The fund is the largest initiative of its type in the MENA region (CREDIT: PERFECTLAB/SHUTTERSTOCK).

Fund for Development, and the Islamic Development Bank agreed on project pipeline to lift poorest OIC countries out of poverty.

Projects were approved in Tajikistan, Sudan, Djibouti, Niger, Mauritania, Cameroon, Uganda, and Guinea. The fund is the largest multilateral development initiative in the Middle East and North Africa for poverty alleviation in member countries of the Organization for Islamic Cooperation (OIC). Addressing the event, the IsDB Group President said that the volume of the Bank’s support for development programmes and infrastructure projects in Africa has reached more than $43 billion, which included funding for projects in infrastructure.

Kenyans abroad are the biggest senders of mobile to mobile remittances WorldRemit has released new data showing that the Kenyan diaspora is the biggest sender of digital remittances to mobile accounts. Transfers to mobile money accounts make up 93 per cent of WorldRemit transactions to Kenya now—showing that Kenyans continue to be early adopters of innovative technology, even when abroad.

Ismail Ahmed, Founder and CEO at WorldRemit, comments, “Kenya is famed for leading Africa’s Mobile to mobile remittances allow customers to digital transformation, and today transfer money around the world from their mobile phone (CREDIT: JOHN KEHLY/SHUTTERSTOCK). it’s Kenyans abroad who are at the forefront of digitising international money transfers. Most of our Kenyan customers use our mobile app, demonstrating the strong demand for convenience when sending to friends and family.

“With half a billion registered accounts worldwide, mobile money continues to transform lives by allowing people to access financial services for the first time.

WorldRemit customers now send more than 65,000 transfers to the country every month from the WorldRemit app and website with over 90 per cent going to M-PESA”.

ITFC organises first African-Asian cotton B2B meeting in Bangladesh The International Islamic Trade Financing Corporation (ITFC), member of the Islamic Development Bank (IDB) Group, organised its first African-Asian Cotton B2B Meeting event as part of its Cotton Development and Partnership Program. The meeting took place in the Westin Hotel, Dhaka, Peoples’ Republic of Bangladesh and The meeting was aimed featured attendance from West at joining Asian cotton African cotton producers, the manufacturers with the cotton producers African Cotton Association, in Africa (CREDIT: PAUL the Bangladesh Textile Mills MATTHEW PHOTOGRAPHY/ Association, the Bangladesh SHUTTERSTOCK).

Cotton Association, and Bengali Spinning/Textile Mills.

The meeting firstly supports the Bangladeshi textile industry, which is the source of employment and export earnings for Bangladeshi economy. ITFC is aiming to build a bridge between the Asian countries, specifically Bangladesh and Indonesia, with African cotton suppliers to develop new business partnerships.

SWIFT supports FACE for Children in Need in Egypt SWIFT has announced that it is supporting the FACE for Children Association to improve the care and nutrition of 50 Egyptian children living without parental care in Benha. This is part of SWIFT’s Corporate Social Responsibility (CSR) activities at the first SWIFT Business Forum in Egypt. FACE also seeks to reduce the number of street children living and working on the streets of Cairo by providing outreach and basic health and nutritional services. It also offers vocational training services leading to eventual social integration.

Khaled Moharem, Head of Middle East & North Africa at SWIFT, said, “SWIFT is pleased to support the excellent work that FACE is carrying out to improve the lives of the children at the Benha Centre. The donation will provide care for under privileged children and promote their reintegration into society.”

www.bankerafrica.com

page 7-9 In the News 043.indd 9

9 24/04/2017 14:29

NEWS SPOTLIGHT SENEGAL

AfDB grants $127.6 million of loans to Senegal The African Development Bank has announced that it has granted $127.6 million in loans to the Republic of Senegal with the objective of modernising transport infrastructure and supporting municipal authorities in 13 municipalities/cities in the country.

The first phase of the programme consists of providing 13 municipalities with basic infrastructure, including the construction of 78,000 kilometres of roads and construction of public facilities, including markets, sports centres, squares and parks.

The second part of the programme is institutional, aimed at providing technical assistance to local authorities and equipping them with modern technology, with emphasis on geographical systems One aim of the programme is to support construction of basic to help better control infrastructure across 13 municipalities (CREDIT: BRUCE regional development.

ROLFF/SHUTTERSTOCK).

In Senegal, UN General Assembly President calls for sustainable management of marine resources

IMF Staff completes Fourth PSI review visit to Senegal The macroeconomic performance of Senegal remained solid in 2016, noted the IMF in a staff visit, GDP growth above six per cent for the second consecutive year and inflation remaining low. In a statement the team said that this is due to low international oil prices and an elevated supply of cereal products on the market.

“The outlook for 2017 remains favourable, with growth once again expected to exceed six per cent. This will nevertheless require continued fiscal consolidation, strengthened public financial management and enhanced governance, improvements to the business climate, and measures to promote SMEs and social inclusiveness,” added the statement.

Moody’s upgrades Senegal’s issuer rating to Ba3, outlook stable In mid-April 2017 Moody’s Investor Services announced that it has upgraded the long-term issuer and senior unsecured debt ratings of the Government of Senegal to Ba3 from B1 and changed the outlook to stable from positive.

Furthermore, the short-term issuer ratings were affirmed at Not Prime.

The agency noted that key drivers of this rating change were higher economic growth driven by government-led upgrades to energy and transport infrastructure in addition to structural reforms. Moody’s also stated that slow but continuous fiscal consolidation and Government debt metrics in line with other Ba3-rated sovereigns further supported the rating change.

10

There are many challenges facing nations in attempting to manage the limited resources of the ocean (CREDIT: BIGONE/SHUTTERSTOCK).

W

hilst visiting a traditional fishing community in Senegal, the President of the United Nations General Assembly, Peter Thomson, called on countries in the region to prioritise conservation and sustainable management of their marine resources.

Whilst in Senegal, the Assembly President met with the country’s Minister of Fisheries and Maritime Economy to discuss the country’s response to challenges facing oceans, including overfishing, marine pollution, acidification and ocean warming.

www.bankerafrica.com

page 10 News Spotlight 043.indd 10

24/04/2017 14:30

The Changing Landscape for Credit Risk Management Historically credit risk portfolios have been managed within separate lines of business, creating silos of activity separate from market and operational risk. But regulatory requirements, accounting rules changes and an evolving economic environment are forcing financial and risk stakeholders to collaborate across the firm. Banks are now integrating credit portfolio strategies with other lines of business that affect market, liquidity and operational risk.

With this sea change, credit risk models need to support risk management and capital allocation decisions at a firmwide level and they need powerful, automated tools to address this challenge.

Developing and executing credit risk models as they become increasingly integrated with firmwide risk, balance sheet targets and limits will require new software and technology, from more sophisticated models to enhanced data management and high performance computing.

Read more. www.sas.com/za/clcrm SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. ÂŽ indicates USA registration.

Other brand and product names are trademarks of their respective companies. Š 2017 SAS Institute Inc. All rights reserved. G28381US.0417

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20/04/2017 15:40

HAPPENINGS

Egyptian economic reforms highlighted at SWIFT Business Forum Egypt SWIFT brought together nearly 200 representatives from the Egyptian banking and finance sector in Cairo for the SWIFT Business Forum Egypt

I

n late March 2017 nearly 200 representatives attended the SWIFT Business Forum Egypt to discuss the challenges facing the sector and the ongoing reform programme of the Egyptian authorities.

Tarek Fayed, Sub-Governor, Central Bank of Egypt (CBE), gave a keynote in which he said, “The Egyptian reform plan, which was supported by the International Monetary Fund (IMF), has set the Egyptian economy on the right course and led to extraordinary results. We have restored confidence from international investors, which has meant that we have covered the Egyptian bond issuance three times and the Egyptian stock market has increased by around 50 per cent.

Furthermore, banks’ foreign currency resources have reached a record of around $15 billion since the flotation regime, meaning that we have met all imports requirements totalling around $23 billion during same period.”

Akram Youssef Tinawi, Managing Director & CEO of Bank ABC Egypt, and Member of the Federation of Egyptian Banks was also in attendance at the conference. In a speech he said, “In November 2016, the Central bank of Egypt decided to liberalise the exchange rate according to mechanisms

12 page 12 Happenings 043.indd 12

Khaled Moharem, Head of MENA, SWIFT gave a keynote speech at the event.

of supply and demand. The country’s financial system illustrated its strength in the months thereafter by absorbing the impact of the flotation and still creating EGP 56 billion in profits since November 2016.”

In a release after the event SWIFT traffic data released added further evidence in support of these positive trends. Traffic volumes increased 12.6 per cent in 2016, a marked increase over global growth for SWIFT of 6.4 per cent. For the year to date, volumes have also increased 5.8 per cent. SWIFT noted that this growth is underpinned by a significant increase in treasury volumes specifically of 42.7 per cent.

SWIFT added that rising traffic volumes is generally an indicator of economic growth. As such the data could indicate the beginning of longer-term economic growth trends for the Egyptian economy and the success of its exchange rate liberalisation programme.

Khaled Moharem, Head of Middle East & North Africa, SWIFT said, “Egypt’s economy is back on track after several years of challenging economic conditions. The latest data from SWIFT reflects this. The SWIFT Business Forum provided an ideal opportunity for the Egyptian financial community to come together and discuss how to take Egypt’s financial sector to the next level.”

www.bankerafrica.com

26/04/2017 14:15

HAPPENINGS

Zimbabwe to use livestock as collateral Banks may soon be compelled to accept livestock as collateral for credit in Zimbabwe

Loans have become increasingly difficult for small businesses and individuals to obtain due to a lack of collateral (CREDIT: PETER HERMES FURIAN/SHUTTERSTOCK).

P

atrick Chinamasa, Finance and Economic Development Minister of Zimbabwe has highlighted the need for banks to respond to the requirements of the country’s informal economy.

As part of this, commercial banks in Zimbabwe may soon be compelled to accept livestock, including cattle, goats and sheep, as collateral for cash loans.

The Movable Property Security Interests Bill, currently at the debate stage in the House of Assembly, will result in the Reserve Bank of Zimbabwe compiling and administering a c o l l a t e r a l - s e c u r i t y r e g i s t e r.

This register will be available for small businesses and individuals to register movable assets on as security in return for credit.

Further to various livestock, other movable items such as vehicles, televisions and computers will also be acceptable as collateral after the items have been evaluated and registered on the central bank’s register.

Zimbabwe’s informal business sector now makes up a large part of the economy following dramatic contraction of the formal sector following President Mugabe’s policy of land redistribution. This bill may be

seen as an attempt to put credit in the hands of those, such as small businesses and individuals, that might have been finding it difficult to secure bank loans in the past due to lack of collateral.

However, another potential viewpoint might be that this move suggests a striking lack of collateral available in the country as Zimbabwe’s economy continues to suffer. This may also cause further hand to the country’s cashstrapped banking sector. With prices on these new forms of collateral set by a central registrar, it is unknown whether banks and financial institutions will receive a fair return for providing credit.

Overall the economy has been fighting an acute cash shortage due to a strong dollar eroding Zimbabwe’s export competitiveness combined with a liquidity squeeze, slowing growth. The shortage has become so pronounced that banks now limit customer cash withdrawals. The southern African nation had mainly been using a mix of foreign currencies, in particular the USD, since its own currency became virtually worthless eight years ago.

The IMF predicts in its World Economic Outlook October 2016, that Zimbabwe’s economy contracted an estimated 0.3 per cent in 2016, a figure which is expected to grow to 2.5 per cent in 2017. Meanwhile, although consumer prices saw a drop of 1.6 per cent in 2016, 2017 is estimated to see price growth of 4.6 per cent.

www.bankerafrica.com

page 13 Happenings 043.indd 13

13 24/04/2017 14:31

OPINION

How far are banks being truly transformative?

Banks need to understand what a digital bank is in order to become one, says Peter Redshaw, Managing Vice President Gartner: Banking & Investment Services Global Research

E

very bank and financial institution we speak to today says it has a mission or a strategy to become a ‘digital bank’ (or digital broker or wealth manager or exchange or whatever— let’s just say ‘bank’ from now on for convenience). Pretty much everyone ‘gets it’ and knows why they have to change and why the status quo cannot be preserved—falling margins, increased cost of capital, higher customer expectations, new rivals, more regulations, fiercer competition, etc.

The question has changed from why do this to how to do this. How can a bank embark on this ‘digital banking’ journey: how can it define the roadmap— how can it disrupt itself—how can it transform itself?

This misses a crucial step. What actually is a digital bank? There are a thousand different answers. For some, its adding a mobile channel to augment existing channels; going paperless or perhaps, more radically, mobile-only with no branches or call centres. For others, focusing on big data and analytics or maybe extending into AI. Still others will see it as having a ‘cloud first’ policy

14 page 14-15 Opinion_043.indd 14

or embracing the Internet of Things or ‘innovation’ as an agent of change.

None of these are wrong—but Gartner’s Banking & Investment Services team defines it as follows: “A digital bank does old things in a completely new way, or, does new things never done before.”

Whilst not the only definition and not even the best one—it’s the one I find most useful. So what does it mean?

Let’s address that in two parts—first the “old things in a completely new way” and then the “new things never done before”.

There’s a test I apply to the first part: “If I stripped away the fancy new gizmos and deconstructed this to its bare essentials, would my (long deceased) grandfather still recognise it?”

Think about it—banking from a smartphone or tablet would have amazed him at first. But he’d have still recognised taking deposits, issuing loans, making payments and transfers—even emails telling him that his monthly statement is ready to view. Different device and different medium but the are fundamentals are unchanged. Slicker and (sometimes)

friendlier—but essentially age old processes simply automated and digitised. Things that happened in series still happen in series. Other than an electronic interface between one system and another, little else has changed.

Doing old things differently might be running them in parallel instead of in series. Or doing it peer-to-peer instead of via a central authority. Or the consumer staging a reverse auction to get the best price or product rather than what they qualify for.

The next time you see a demo of some app or other technology, try running that test—dig below the dazzling exterior and see if it is really doing an old thing in a new way. If it fails that test, that doesn’t mean that it is useless, it may well be an improvement. But it won’t be truly transformative or progress towards becoming a digital bank.

So what’s the test for the second part: “new things never done before”.That ought to be easier to recognise, right? Is anything truly new—most inventions aren’t a totally new artefact imagined by a genius.

www.bankerafrica.com

26/04/2017 14:17

Even lightbulbs were more evolution than revolution. There’s a simpler alternative that analyst Kristin Moyer uses when talking about “businesses as platforms” or, more specifically, “banks as platforms” (see Winning the Platform Game, Part Two: Creating a Foundation for Platform Business Success). Mayer asks: “Does this thing add a new line to your bank’s income statement?”

Has the bank monetised something new that does not fall under fees and interest income from the familiar old categories? Mayer has covered some of these items in the research note entitled 10 Digital Revenue Opportunities for Banks, which covers ‘trust brokers’, ‘personal data banks’, ‘marketplaces’ and so on. Irrespective of how many channels and technologies banks add, this is the key to bank transformation.

There’s one more element we need to consider. Banks need a clear vision and destination, otherwise there is chaos.

Peter Redshaw

In fact, the destination is more important than the plan. As we embrace “fail-fast” and “bimodal” and a “culture of change”, plans are unlikely to survive intact. We need to continuously adapt to the ever-changing world and volatile environment. Knowing what kind of bank you want to be is essential in order to avoid the pitfall of innovation for the sake of innovation. David Furlonger and Juergen Weiss cover this in Different Innovation Patterns Accelerate Digitalization in Insurance and Financial Services.

Finally, I need to answer the question asked in the title—how far are banks being truly transformative? Using the tests described above, are they really making the transition from analogue to digital banking? Or are they just reinventing themselves as a slicker, more automated version of their old selves? Do they have a clear vision?

Every year, my team meets and speaks to a vast array of banks.

Here’s what we see: • Almost everyone is convinced that they need to change. Three to four years ago only the most visionary of banks, the early adopters, saw a need to change. Most claim to have a strategy to become a digital bank or to transform themselves. They are aware of the negative impact of old legacy systems and the threat posed by new competitors.

• Most banks are actively pursuing a more open strategy. They are opening up APIs, partnering with fintech startups, staging hackathons, etc.

They are seeking ways to augment their capabilities and ecosystem.

• But most of the innovations, projects and initiatives fail the two tests described above. Mostly they are “better mousetraps”—improved but not necessarily new ways of doing old things.

• Less than five per cent of banks are truly disrupting themselves through transformational initiatives. The genuinely digital banks are those that: Have a clear vision of what their bank of the future looks like.

A re redefining their value

proposition.

Can support many business models via a platform—not just push their own business model.

Adopt an “outside-in” approach to change—seeking innovation from partners and other industries.

C an support a combination

of people, processes and (eventually) things.

The bottom line is many banks have good intentions. Banks are changing but few are truly transforming. If, as we expect, the law of “economies of access” comes to dominate this industry only the transformative banks will survive.

To hear more about this and similar topics attend the Gartner Symposium/ ITxpo Africa 2017 in Cape Town from 18-21 September.

www.bankerafrica.com

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15 26/04/2017 14:17

THE MARKETS

A commodity bull market coming in 2017?

After commodity prices bottomed in early 2016, demand is outstripping supply once again, suggesting the next bull market may be approaching, writes David Donora, Head of Commodities, Columbia Threadneedle Investments

Demand for commodities is likely to increase in 2017, says Donora (CREDIT: CIGDEM/SHUTTERSTOCK).

16 page 16-18 Markets 043.indd 16

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2

016 was the year when the commodities bear market ended. It capitulated in January when crude oil fell below $30 a barrel and a number of commodity-producing companies in the energy and metals sectors were in a battle for survival, selling off assets and desperately restructuring their balance sheets.

As commodity prices fell below the cost of production, these companies were losing money at a rapid rate.

If oil stayed below $40, then 20 per cent of global capacity would have gone out of business. Similarly, major mining companies Glencore and Anglo American were forced to liquidate significant parts of their overall businesses to reduce debt and to shore up their balance sheets.

The market recognised that prices were unsustainably low and there was a small bounceback. As we enter January 2017, prices are rising further. This is because, although prices fell in 2015 and the beginning of 2016, demand for commodities continued to increase; not at an extremely strong rate but fairly consistently. And so the requirement for increased production over the medium term remained.

The Bloomberg Commodities Index rose 11.8 per cent in 2016. That does not signal a bull market. In my view, a commodity bull market is when we experience a doubling or tripling of commodity prices. In the bull market of 2000-2008, the index tripled in value. That was a full commodity bull market. 2016’s rise is just bouncing along the bottom.

So, prices have risen, significantly in base metals and in energy. In oil, OPEC countries and a number of nonOPEC countries led by Russia have agreed to take 1.8 million barrels per day of production off the market to reduce excess inventories more

quickly than they would otherwise have been depleted.

DEMAND OUTSTRIPS SUPPLY

The question for 2017 is whether the market bounces along the bottom or prices increase significantly. My view for 2017 is that we will have significantly higher prices for a number of reasons:

For example, for two years the oil price has been around $50 rather than $110. That halving in the price of oil was worth $2 trillion per year to the benefit of consumers, at the expense of oil-producing companies and countries.

Fourthly, governments of both developed and emerging countries are signalling a shift in focus from

I expect there will be significant demand growth. Emerging markets demand will be greater than the market expects, especially in Asia.

— David Donora

Firstly, the supply side is not in a position to respond to significant demand growth. While commodity producers have spent the last three years dealing with very low prices, focusing on balance sheet restructuring and saving cash, they have not brought on new projects. Also, in mining they have been ‘high grading’ (only producing the highest grade ore) to just stay cash-neutral or cash-positive.

Secondly, I expect there will be significant demand growth. Emerging markets demand will be greater than the market expects, especially in Asia.

China has been going through economic restructuring for a number of years.

We believe that it is coming through that and there will be stronger consumer-led demand from China and all Asian emerging markets.

Thirdly, we think that in the developed and emerging markets, consumers have enjoyed low food and energy prices for two years, and that has shored up their finances and now they are also receiving higher wages. So, we expect consumer demand for commodities to increase.

monetary policy to fiscal policy and fiscal stimulus. They recognise that quantitative easing has not materially helped consumers and consider that fiscal stimulus is more likely to do so.

We expect to see the US, Europe and Japan turning to fiscal stimulus, while China continues to deploy it. That will increase demand for commodities.

A WIDESPREAD TREND

The increase in demand is likely to be most acute in base metals. Copper, zinc, nickel and aluminium should benefit from a substantial increase in consumer demand for metals.

We think the growth rate for oil demand will continue to be strong in 2017. The return of supply discipline will keep the oil price on an upward trajectory. It is worth noting that there is very little spare capacity globally.

If the OPEC agreement holds and 1.8 million barrels are taken off the table globally, that accounts for almost all surplus inventory, leaving the world vulnerable to a supply disruption. We have concerns about this given the security situation in the Middle East. cont. overleaf

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17 24/04/2017 14:35

THE MARKETS

cont. from page 17

The new US administration is unlikely to want to be the region’s peacekeeper.

And while the Russians have become more involved, it is not clear whether this will contribute to stability or not.

It is likely that the boundaries drawn up in the Sykes-Picot Agreement 100 years ago will be redrawn.

Longer term we are bullish about precious metals as well. Gold is likely in the short term to continue to be weak while bond yields are rising.

Commodities, in general, are negatively correlated with bonds but gold at the moment is behaving more like a lowyield reserve currency and less like a commodity. Gold will be weak when bond yields are going up and bond yields have some way to go. Once bond yields plateau we would expect to see gold strengthen again.

The increase in demand is likely to be most acute in base metals. Copper, zinc, nickel and aluminium should benefit from a substantial increase in consumer demand for metals.

— David Donora, Head of Commodities, Columbia Threadneedle Investments Turning to agricultural commodities, there have been two years of abundant harvests as the El Niño weather cycle’s stable weather pattern has prevailed.

But this has ended, so weather is likely to be more variable in growing regions and so crop yields are likely to fall. Our view is that despite having two great years to rebuild stocks, they are only adequate.

18 page 16-18 Markets 043.indd 18

SPOT GOLD AND US REAL RATES (December 2015 to March 2017) Spot Gold

USD/oz

US 10-yr real yield, inverse

%

1400

-0.3

1350

-0.1

1300 0.1

1250

0.3

1200 1150

0.5

1100 0.7

1050 1000 DEC JAN

0.9 FEB MAR APR MAY

JUN JUL

AUG SEP OCT NOV DEC

JAN FEB MAR

Source: Bloomberg, Saxo Bank

OECD'S COMMERCIAL OIL STOCKS mb 3,200

3,200

mb

3,100

3,100

3,000

3,000

2,900

2,900

2,800

2,800

2,700

2,700

Historical range 2012-2016

2,600

2,600

2,500 JAN

2,500 FEB

MAR

APR 2015

MAY

JUN

2016

JUL 2017

AUG

SEP

OCT

NOV

DEC

Average 2012-2016

Source: CPB Netherlands Bureau for Economic Policy Analysis (CPB); World Bank.

Note: Global trade is world import volumes adjusted seasonally.

If the next Northern Hemisphere harvest is compromised, we will see upward pressure on agricultural prices.

START OF THE BULL MARKET?

Across the commodity markets as a whole, we expect 2017 to be another positive year. Inventories are tightening.

Commodity curves are flattening, which supports prices and returns for investors.

Producers are likely to have difficulty keeping up with demand over the next couple of years.

We have had the end of the bear market, after which there is normally a period of bouncing along the bottom.

While this historically has persisted for two to five years, we think that a focus on improving the lot of consumers could bring this forward to 2017.

www.bankerafrica.com

26/04/2017 14:20

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20/03/2017 14:40

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CENTURY

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COVER STORY

Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

Emirates NBD's international expansion into Egypt In an exclusive interview with Banker Africa, Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt, laid out the bank's ambitious strategy moving forward

20

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26/04/2017 14:26

I

n December 2012, Emirates NBD made the decision to buy the Egyptian operations of BNP Paribas as its first major international investment. What triggered the big move?

By the time we made the decision to purchase BNP Paribas Egypt, international expansion had been on the cards for the Emirates NBD Group for a while. The bank had enjoyed a long success story in the UAE and would continue to do so, but the market had become fairly saturated with over 50 banks vying for customers.

We felt we needed to geographically diversify our business.

For Emirates NBD, the most logical decision was to see how we could continue growing through international expansion but it had to be the right move for the bank.

From the outset, Egypt was always in our sights. You have a huge population edging nearly 100 million and yet the majority of those people are not using the official banking sector so there is a big untapped market.

The decision by BNP Paribas to sell its Egyptian business was also not particularly abnormal at the time.

Several global banks either had or were selling some of their international assets, usually as part of a bigger mandate to fix their global balance sheet and simplify their international footprint following the expansion spree we witnessed in the two decades prior.

Egypt also had existing cultural, political and geographical ties with the UAE and being located in the gateway to Africa, it gave us a great vantage point to eye further expansion opportunities across the MENA region. When you put all of those factors together, you can see how Egypt was a frontrunner for our expansion plans. When the BNP Paribas opportunity came up, we went for it.

In saying that though, it was not necessarily the lowest-risk decision either. When we were negotiating the BNP Paribas deal, the Egyptian revolution was dominating both local and international headlines. But for us, it was always about the country’s longterm growth opportunities and we’ve remained focused on that ever since.

Now in 2017, the transition into Emirates NBD Egypt is well behind you. What are your long-term ambitions for the bank?

We are striving to become one of the top private sector banks in Egypt and I am really pleased to say we’ve made encouraging progress towards that goal so far.

We were the 11th largest private sector bank in 2012 and today, we are sitting in eighth position. We have outpaced the industry in terms of growth and our visibility in the market is increasing rapidly. However, as a market challenger, we need size and scale to compete effectively with the biggest privately-owned Egyptian banks. It is a fairly ambitious target because most of those banks have had several decades to grow their market presence but we have a multifaceted strategy to achieve it.

From a numbers perspective, we need to grow our balance sheet, assets and customers. We need to open more branches and aim to have 100 up from our current 64 by 2020, and install more ATMs too. This is important because whilst Egypt is increasingly embracing digital banking services, the absence of branches and to a lesser extent, ATMs is still a major barrier when it comes to people setting up bank accounts, particularly outside Cairo.

It is an interesting contrast though, because whilst digital banking is yet to

become the norm in Egypt, the country has a huge millennial population. This is the generation where Uber, Facebook and Airbnb are growing fast to become the norm, and who increasingly expect the same level of digital service and innovation from their banks too.

As a result, our growth strategy combines traditional ‘bricks and mortar’ style expansion across Egypt whilst simultaneously increasing both the number and quality of digital channels offered too.

Digitisation is also a big focus for the Emirates NBD Group and it has really made big leaps over recent years to gain a digital advantage in the UAE. It benefits us because we are increasingly leveraging the UAE technology and know-how to achieve the same digital differentiation here in Egypt. This provides us with a strong competitive edge.

We do have other ambitions outside growth though and corporate social responsibility is one such example.

We are launching our strategy for this shortly in 2017 and it will ensure we are supporting the community during a time when it is definitely needed. We want to embed a volunteering culture across Emirates NBD Egypt because it is really important for our staff to feel like they have an opportunity to give back to society, and that they are working for a company which enables that.

How do you think digital technology is changing the banking sector and what digital innovation can we expect from Emirates NBD Egypt in the not too distant future?

When you think of the most innovative industries in the world, it is fair to say that the banking sector does not typically come first to mind. But times are changing, not just because more customers are demanding innovative cont. overleaf

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21 24/04/2017 14:37

COVER STORY

cont. from page 21

digital banking services but also given the threat posed by the growing emergence of start-up fintechs.

No one in the taxi industry saw Uber coming, nor did Blockbuster foresee the advent of Netflix. Over here in the banking sector, we definitely do not want to make the same mistake, so we appreciate both the magnitude of opportunity that digital banking in all its different forms represents but also the gravity of the threat.

We are now seeing a lot of banks rapidly move to embrace digital technology. In the earlier days, this focused mainly on introducing new online channels but the goal-posts have widened and end-to-end digital transformation is now more often the objective. That means digitising not only banking services and channels but also payments technology, operational processes and marketing, and even stretching over to other functions like human resources and risk management.

This means big change and more and more, we are seeing banks lay down the investments needed to make it happen, and changing a lot of old mindsets along the way.

Here at Emirates NBD Egypt, we took our first digital steps back in 2015 by launching our online and mobile banking platforms. In 2016, we introduced ATM and Interactive Teller Machines technology, whilst forming partnerships with leading telecommunications and online payments providers to further expand our online and mobile banking options.

This year, we are really starting to hit our digital stride and driving financial inclusion through technology is something very close to our heart.

Financial inclusion is also a big priority for the Central Bank of Egypt, so we will continue expanding our online and mobile banking channels whilst introducing new ones to help make it happen.

22

Giel-Jan M. Van Der Tol, CEO, Emirates NBD Egypt

We will also enhance our digital capabilities on the Corporate Banking side, particularly in areas like trade finance through our Smart Business application, and progressively move our operational backbone online with more straight-through processing and automation.

I am describing Emirates NBD Egypt’s digital evolution as a journey because that is exactly what it is.

It is still fairly early stages for us and there is much more to do but we will continue making the digital investments needed to ensure we innovate and prosper.

www.bankerafrica.com

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26/04/2017 14:27

How has the devaluation of the Egyptian pound impacted your long-term strategy?

Like many other businesses, we see the currency devaluation as the medicine Egypt had to take and there are lots of early signs it is working.

We are seeing investors return to the debt market, the power of the parallel FX market is eroding thanks to more dollar inflows, and the Egyptian government’s increasingly robust budget management is consolidating the country’s fiscal debt.

Remittances from expats living outside Egypt have grown with a fourth quarter increase in 2016 of 12 per cent to $4.6 billion, and most of that happened after the devaluation. Stocks have also surged with a record high achieved in January, although admittedly in local currencyterms only.

All of that is good news and whilst there are still many challenges to overcome especially as inflation is still high, our overall mood is one of cautious optimism. As a result, we are looking to capitalise on the opportunities that will continue emerging following the devaluation.

Because of this, our strategy here in Egypt fundamentally has not changed.

We are still very much focused on growth, albeit at a slower pace at least until the economy fully stabilises itself and the currency returns to strength.

Of course, vigorous risk management and internal controls are also important at this time. We have put the appropriate provisions in place and conducted extensive stress testing to ensure our portfolio can withstand any challenges encountered over the upcoming years.

So where do you see the opportunities emerging for Emirates NBD Egypt following the devaluation?

R i g h t n o w, t h e r e a r e l o t s o f opportunities in the market. Last year, we launched our Nile Account that

allows Egyptian expatriates to easily remit money back to Egypt with a competitive package, whilst we also established a dedicated SME unit. We see sizable growth potential for both over 2017, with the SME market in particular being recognised as a driver of economic growth by increasingly replacing imports and serving the larger corporate network.

On the Corporate Banking side, we are already benefiting from higher foreign currency flows through an uptake in our trade finance products, linked to export growth. In addition to the SME sector, another big government priority is infrastructure and transport investment. We are well positioned to help make these investments happen with a good track record in this sector.

We see lots of opportunities in electricity and gas, and in critical support areas for the housing sector like water and waste management. We are targeting these areas and aiming to see our role in such syndicated loans evolve from participant to leader.

Lastly, with foreign direct investment increasing in Egypt, we are very keen to capture Chinese investment in particular. A new industrial zone is being established in North-East Suez Canal by Chinese investors who are also existing clients of ours. We will open a dedicated office there by the end of the year to ensure we are the first bank to be referenced for further incoming Chinese investment and we will set up a Yuan Nostro account too.

In addition to expected GDP growth, you can see the opportunities are here for the taking in Egypt and we are well positioned to capitalise on them.

You recently made a $125 million subordinated loan agreement with the European Ba n k f or Recon st ruct ion and Development (EBRD).

Why was this loan obtained and how will you use the funds?

The EBRD mainly supports countries that are working hard to transition into well-functioning economies.

Their first investment in Egypt was in 2012 and today, it has around EUR 2.3 billion worth of investments under its belt here. A significant portion of that investment has helped to advance the financial sector in recognition of its role in supporting Egypt’s economic advancement.

Aligned with that, our EBRD subordinated loan has augmented our capital base so we can further grow our business and balance sheet. Of course, this directly supports our longterm growth ambitions and in turn, also allows us to help strengthen Egypt’s real economy. A lot of the funds will be directed to our SME sector which as mentioned before, is playing an increasingly important role in driving Egypt’s growth.

Prior to obtaining the loan, we had extensively studied many other financing alternatives but the EBRD subordinated loan was the right fit for us. Putting aside satisfactory pricing and structure, it gave us the benefit of having a good portion of our capital base denominated in foreign currency.

Equally, the EBRD’s strategic plan for Egypt focuses a lot on growth in SMEs, infrastructure and transport; all of which are also priorities for us, so it was a good fit for them too.

The deal was actually the first of its kind in Egypt as never before had a third-party lender like EBRD provided such a loan to an Egyptian bank. New regulations were also put in place by the Central Bank of Egypt to make it happen. As a result, I am proud to say it now paves the way for other banks in Egypt to do something similar, for the benefit of those banks, the Egyptian financial sector and the broader economy too.

www.bankerafrica.com

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23 24/04/2017 14:37

COUNTRY FOCUS EGYPT

Egypt: no pain, no gain Egypt has remained a challenging environment for the past few years, but in the face of the authorities’ willingness to implement reforms, increasing optimism can be found

(CREDIT: FILIPE FRAZAO/SHUTTERSTOCK).

24

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26/04/2017 08:36

S

ince 2011 the political situation in Egypt has caused significant problems for the country’s economy.

Political transition in combination with underlying challenges including a significantly overvalued currency, weakening revenues, and a growing public sector bill has led to several macroeconomic imbalances in the Egyptian economy. Measures to address these issues began in 2014/15 with the Central Bank of Egypt (CBE) devaluing the Egyptian pound by five per cent and increasing interest rates to constrain inflationary pressure.

As part of Egypt’s reform programme, the CBE decided to move the EGP to a completely floating currency in November, which is now trading at its genuine exchange rate noted the IMF. However, in the process the pound lost about half of its value, with prices increasing at the fastest rate in 12 years in December 2016, further compounded by removals of fuel subsidies and the introduction of a new value-added tax.

However, reforms such as these have increased the frustration and struggle for the Egyptian people. Fitch Ratings has that noted key challenges for the economy lie in combating social unrest—which the government is trying to address with increases in social spending and other measures, including improvements in electricity provisions.

Furthermore, the agency added that even if the reform process continues smoothly, gross general government debt will take several years to reduce to more sustainable levels.

INTERNATIONAL SUPPORT

The reform process has been welcomed by international institutions, however.

The Executive Board of the International Monetary Fund (IMF) approved a threeyear extended arrangement under the Extended Fund Facility (EFF) for

Egypt with a value of approximately $12 billion to support the authorities’ in their economic reform programme.

The Executive Board’s approval allowed for an immediate purchase of $2.75 billion, with the remaining amount to be phased out over the duration of the programme, subject to five reviews. The first review of the IMF programme is set to complete before end-June, which would release an additional $1.25 billion. Fitch believes that the outcome for this is likely, as the authorities appear to have broadly met monetary, policy and budgetary targets.

public finances, and encourage private sector-led growth.”

POSITIVITY IN FX

Foreign exchange (FX) reserves have continued to rise for the Egyptian economy, reaching $26 billion as of end-January 2017, up by more than $10 billion from the low seen in July 2016. Fitch noted in March that it has seen anecdotal evidence of progress being made in clearing the backlog of FX demand in the economy. The agency continued that these positive developments for the economy are

Egypt is implementing a strong economic reform programme to help the economy return to its full potential, achieve more growth and create more jobs. We recognise the sacrifices made and the difficulties faced by many Egyptian citizens, especially due to high inflation.

— Christine Lagarde, Managing Director, IMF

On the subject of the EFF, Christine Lagarde, Managing Director and Chair of the IMF, said, “The Egyptian authorities have developed a homegrown economic programme, which will be supported under the IMF’s Extended Fund Facility, to address longstanding challenges in the Egyptian economy.

These include: a balance of payments problem manifested in an overvalued exchange rate, and foreign exchange shortages; large budget deficits that led to rising public debt; and low growth with high unemployment. The authorities recognise that a resolute implementation of the policy package under the economic programme is essential to restore investor confidence, reduce inflation to single digits, rebuild international reserves, strengthen

largely a reflection the inflows from multilateral and bilateral institutions— particularly the IMF and World Bank, the resumption of foreign portfolio inflows and remittances after the authorities floated the pound, and improving export activity in conjunction with import compression.

The economy remains under heavy pressure from the economic reform process, however. Growth will likely be held back by a weak domestic economy and the need for fiscal consolidation, noted FocusEconomics in its Consensus Forecast Middle East North Africa— April 2017. The outlook for exports is more favourable with higher overseas investment and a more stable fiscal and economic environment suggesting higher growth is likely in the future. cont. overleaf

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25 24/04/2017 14:38

COUNTRY FOCUS

EGYPT

by the numbers POPULATION

th 16 in the

94.7 million 10m

world

100m

Credit: CIA World Factbook (July 2016 est.)

GROSS DOMESTIC PRODUCT I VARIATION IN PER CENT 6.0

TOP 10 BANKS IN EGYPT YEAR-ON-YEAR

4.0 % 2.0 0.0

Q1 14

Q1 13

Q1 15

Q1 16

Q1 17

Note: Year-on-year variation in per cent.

Source: Ministry of Finance (CBS) and FocusEconomics Consensus Forecast.

INFLATION I CONSUMER PRICE INDEX 8 6

40

Month-on-month (left scale) Year-on-year (right scale)

30

4 % 2

20 % 10

0

0

-2

Feb-15

Aug-15

Feb-16

8.67 Liabilities UP 8.67% % Revenue UP 15.96 Net Profit UP 31.66% %

Assets UP

Aug-16

-10

Feb-17

Note: Year-on-year and month-on-month variation of consumer price index in per cent.

Source: Central Agency for Public Mobilisation and Statistics (CAPMAS).

MACROECONOMIC INDICATORS Real GDP growth Real GDP per capita growth CPI inflation Budget balance % GDP Current account % GDP

2013/14(e) 2.2

2014/15(p) 4.2

2015/16(p) 4.3

2016/17(p) 4.5

0.0 10.8 -12.2 -0.9

2.0 11.2 -11.5 -3.7

2.2 8.8 -9.6 -1.1

2.4 10.2 -8.7 -1.4

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations, Africa Economic Outlook.

26

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page 26 Country focus-Egypt 043.indd 26

26/04/2017 14:29

cont. from page 25

Social unrest has been flamed by Egypt’s economic reforms (CREDIT: MIDOSEMSEM/SHUTTERSTOCK).

Fiscal consolidation, in combination with Egypt’s continued progress in external rebalancing noted in rising foreign exchange reserves, a return of private capital inflows and currency appreciation, suggest that there is groundwork for an improvement in sovereign credit metrics in 2018, added Fitch.

For 2017 and 2018 the government is targeting growth rates of 5.2 and 4.6 per cent respectively. The panellists involved in FocusEconomics’ research believe a lower figure for FY 2017 is likely, placing estimates for growth at three per cent for 2017 and 3.8 per cent for 2018.

INFLATIONARY INTENSIFICATION

Inflation reached a multi-decade high in February reaching 30.2 per cent.

This marked an increase over the 28.1 per cent inflation level seen in January and is notably the highest inflation level the country has experienced since November 1986.

Inflationary pressures have been amplified by the flotation of the pound, the scrapping of subsidies on goods such as fuel, and the introduction of a new value added tax. In particular, the exceptionally weakened EGP has eroded Egyptians’ purchasing p o w e r, s a i d Fo c u s E c o n o m i c s ,

whilst also increasing the prices of imported goods. Furthermore, subsidy removal has prompted increased social unrest, supply shortages and discontent, whilst conversely improving investor confidence in Egypt, with international reserves rising.

In early April, Lagarde lent further support to Egypt’s reform programme following a meeting with Egypt’s President Abdel Fattah El Sisi in Washington.

“Egypt is implementing a strong economic reform programme to help the economy return to its full potential, achieve more growth and create more jobs. We recognise the sacrifices made and the difficulties cont. overleaf

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27 24/04/2017 14:38

COUNTRY FOCUS EGYPT

cont. from page 27

faced by many Egyptian citizens, especially due to high inflation,” said Lagarde in a statement.

“The IMF is working to help the government and the Central Bank bring inflation under control and supports the steps the Egyptian authorities are taking to protect its poorest and most vulnerable citizens.”

Overall, Egyptians are likely to continue to feel the pain of economic reform for some time. The outlook for the country’s economy remains positive in the long-term however.

Strong support for the IMF’s reform programme from Egypt’s authorities, noted in the achievements of the country in meeting objectives set out by the IMF, provides further positivity.

We can look for an improving macroeconomic situation to continue throughout 2017, with further improvements likely in 2018 barring any significant social unrest in protest of increasing reforms.

BEST BANKS Rank

Bank

1

Banque Misr

2

National Bank of Egypt

3

Commercial International Bank Egypt

4

Arab African International Bank

5

HSBC Bank Egypt

6

Afreximbank Egypt

7

Bank of Alexandria

8

National Bank of Kuwait - Egypt

9

Emirates NBD Egypt

10

Credit Agricole Egypt

Source: Banker Africa

OUR NUMBERS

Banker Africa’s analysis of the top banks in Egypt has revealed some interesting results. In this chart we rank the ‘Best Banks’ in Egypt. This ranking is based upon two primary factors of equal weight—dollar growth year-on-year and overall size of the bank.

28

The EGP halved in value following the decision of the CBE to float the currency (CREDIT: MARYNA PLESHKUN/ SHUTTERSTOCK).

The importance of the IMF programme In a report released recently Moody’s stated that Egypt’s IMF programme will support gradual improvements for both the country’s fiscal and external positions, whilst the social and economic costs could risk slowing down the pace of fiscal reform momentum.

Steffen Dyck, a Senior Credit Officer for Moody’s, and co-author of the report, said, “The implementation of the IMF programme’s targets, including reductions in fiscal deficits and government debt levels, as well as improvements in Egypt’s external liquidity position, will help address Egypt’s key credit challenges.”

“However, ambitious fiscal consolidation targets will be challenging to achieve and could face implementation risks in a scenario of mounting public discontent,” he added.

Egypt’s fiscal deficit is set to decrease to 11 per cent of GDP for FY 2017, and 8.5 per cent in 2019, down from 12.6 per cent in 2016, said Moody’s.

This is in contrast to the more optimistic IMF programme projections of ten per cent for FY 2017, and then down to 6.1 per cent FY 2019. Moody’s supports this analysis with the agency’s lower growth assumptions and the potential for fiscal slippage, in both the near and medium term.

Moody’s believes that Egypt’s current account deficit is due to remain high based on the liberalisation of Egypt’s FX regime and the depreciation of the EGP, compounded by high demand for imports and the lower sensitivity of exports to the exchange rate. Due to this assumption, Moody’s anticipates that as a percentage of GDP the current account deficit will increase in FY 2017, and will only fall from 2018 onwards.

Despite this, Moody’s expects that the country’s monetary, fiscal and structural reforms will lead to slow but steady improvements of the country’s sovereign credit profile beyond the timeframe of the IMF programme.

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24/04/2017 14:38

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20/11/2016 16:56

CASE STUDY

Changing mind sets In the second part of our interview with Efosa Ojomo, Global Prosperity Researcher at the Clayton Christensen Institute for Disruptive Innovation, he detailed how the perception of Africa by investors needs to change

Africa needs to be viewed through a different lens by investors says Ojomo (CREDIT: ALEX_PO/SHUTTERSTOCK).

D

o African countries have a PR image problem attracting international investment?

I think partly yes. PR is supposed to make me look better than I am, that’s the essential thrust of public relations, but I don’t think we want

30

African countries to look better than they are. I think they are what they are, and because that they present a lot of opportunities.

When you look at Africa you see 600 million people that don’t have access to electricity and question, ‘how can I build a business or build a plant?’ The fact is 600 million

people don’t have access to electricity, there’s no way to spin that. Instead of looking through the consumption lens, meaning that these people can’t buy products in the same way as elsewhere, what we should then do is look at electricity, a commodity. If you can figure out a viable business model that allows you to deliver a

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26/04/2017 14:35

commodity to this many people you will be a billionaire. It’s the biggest region in the world where you can still get incredibly rich by selling a simple commodity, like electricity or water.

The question then becomes how can this be developed into a viable business model as opposed to the model that works in America, Europe or Japan. If you try to copy and paste that model onto the continent, it’s not going to work, therefore there’s no opportunity—but that’s not the way to think about it. You need to think about it from the perspective that Africa is poor, and if we keep waiting for Africa to emerge, quite frankly it never is going to.

Based on that, what kind of investment should corporates be looking at doing to get involved in the continent?

That’s a question that I like.

Sometimes people ask which sector?

What country? And I think that the sector question isn’t quite the right way to categorise it, I like your question, what ‘kind’ of investment.

It’s an investment that we would say is patient for growth but impatient for profits. So it’s an investment that says ‘I’m going to go into this market, and I want to deliver a product or a service’.

When you come in with that mindset, it’s very different to coming in for a couple of years trying this out and if it doesn’t work, leaving. It’s a mindset that says ‘I know there’s a market’. If there are people who have a need for a product but because of the existing products in the market they can’t quite afford it, it’s too expensive, or they don’t have the time to use the product, then that’s an opportunity.

This refers the majority of people in Africa for very basic things.

You need to come in and develop a business model that targets those people and says, ‘we’re going to meet you where you are at the price point you can afford, we know you make, for instance, $500 or $300 a month and figure out how to develop a business model that targets you’.

This has already been done in telecoms, and the thing about telecoms is you don’t have 10 guys in a room writing software code and all of a sudden you have a product that people can use. That’s not telecoms. Telecoms is working with the government, building your first product, hiring a group of people and selling it. That’s what the telecoms industry did; they came in and asked how can I target the average.

What’s fascinating about that we can connect this back to the development of the richest countries in the world today. Based on my research if were not under an authoritarian regime that decided to take development seriously, such as Singapore, Taiwan or China, but were in a more democratic country, struggling with democracy, then that is how development happened in Europe, America and Australia. So the immense opportunity in Africa is there, but we need to frame it very differently.

How does investment need to change to support these opportunities?

What you are seeing is very different types of financial institutions taking a rise. You can see the rise of private equity and local African PE firms.

That’s the way we have decided to solve the problem. The thing about private equity, however, is private equity goes in but not necessarily with a developmental mandate.

When you look at private equity and best practices, you go to New York, London and Singapore which

all share similar thoughts. When I was in business school, the guys in private equity would say ‘in five to seven years we exit and we need at least 20 per cent returns as standard’.

Now again when you take that best practice and you slap it on Africa, where you don’t have roads, you don’t have infrastructure, you don’t have the same business environment, and all of a sudden the opportunity you can chase is so much smaller.

As such what we have is a lot of capital but no deals, that’s the problem. In a way we’ve attracted this new type of capital, private equity, but we’ve also attracted it with the baggage of what it means to be a successful private equity investor.

Private equity can solve many of these problems because they’re not as heavily regulated, like banks, and they don’t have the same risks.

There’s an opportunity for private equity to actually take us to where we need to go, but the mindset has to change. Private equity cannot use the same strategy as elsewhere, it won’t work. You need to go in knowing what the problem is that you’re trying to solve.

One of the things that I’m learning is that when capital divorces itself from its function, which is to essentially smooth the creation of a better ways to do things and essentially help us invest in innovation, and forgets what it’s there for, then what you have is capital chasing higher and higher returns. Capital just says the reason its sole purpose here is to get bigger and better, so that in five years $10 can transform into $20. That’s not the function of capital that’s the result of capital doing its function, but it’s not the function. What we need to do is get back to what the function of capital is and can we in our current capacity deploy that capital to solve the hard problems facing Africa.

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31 24/04/2017 14:44

SECTOR FOCUS REAL ESTATE

Africa’s divergent real estate markets In a new report Knight Frank outlines the property opportunities across the African continent

Spending on real estate construction is only set to increase in Africa, says Knight Frank (CREDIT: YUTTANA CONTRIBUTOR STUDIO/SHUTTERSTOCK).

D

espite recent challenges facing some of Africa’s commodity driven countries, property markets on the continent are continuing to develop, says Knight Frank in its Africa Report 2017.

Between 2000 and 2014 GDP growth averaged over five per cent per annum for Africa. This came to an end primarily with the commodity super cycle which had played an important role in the rise of major commodity-exporters, such as Nigeria and Angola. Increasingly though there has been a divergence

32

in the growth of commodity importing versus commodity exporting nations.

The commodity slump has caused an average downward trend for Sub Saharan Africa. This is largely due however to the impact low oil prices has had on Nigeria and Angola, two of the largest economies in the region, and South Africa, which has suffered from subdued mining and manufacturing and a slowdown on agricultural production.

The divergence between commodity importers and exporters can been seen most clearly in the much higher growth

rates of the commodity importing nations in East Africa, which have benefited from lower oil prices. In particular, Tanzania, Ethiopia, Kenya and Rwanda have all managed to maintain GDP growth in excess of five per cent. Furthermore, two West African countries were highlighted by Knight Frank—Côte d’Ivoire and Senegal—as outstanding performers in the region.

DEMOGRAPHIC STRENGTHS

Despite slowing economic growth, Knight Frank argue that the continent’s cont. on page 34

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24/04/2017 14:45

Untitled-1 1

06/02/2017 14:05

Value of oil exports (US$ billi

70

60

60

50

50

40

40

30

30

20

20

10

10

0

REAL ESTATE

NIGERIA

ANGOLA

ALGERIA

LIBYA

Value of oil exports (US$ billion)

EGYPT

EQUATORIAL REPUBLIC GUINEA OF THE CONGO

GABON

SOUTH SUDAN

Oil’s share of total exports (%)

SECTOR FOCUS

70

0

CAMEROON

Oil’s share of total exports (%)

Source: Observatory of Economic Complexity (2014)/Knight Frank calculations Data includes crude and refined oil

cont. from page 32

Unique mobile subscribers (millions)

800

80

700

70

600

60

500

50

400

40

300

30

200

20

100

10

0

2010

2011

2012

2013

Unique mobile subscribers (millions)

2014

2015

2016

2017

2018

2019

2020

0

Smartphone connections (% of total)

Source: United Nations Population Division/Knight Frank Africa Report 2017

Source: GSMA Intelligence

AFRICA’S LARGEST OIL-EXPORTING COUNTRIES 100

90

90

80

80

70

70

60

60

50

50

40

40

30

30

20

20

10

10

Value of oil exports (US$ billion)

100

0

NIGERIA

ANGOLA

ALGERIA

Value of oil exports (US$ billion)

LIBYA

EGYPT

EQUATORIAL REPUBLIC GUINEA OF THE CONGO

GABON

SOUTH SUDAN

CAMEROON

Oil’s share of total exports (%)

0

Oil’s share of total exports (%)

Source: United Nations Population Division/Knight Frank Africa Report 2017 Source: Observatory of Economic Complexity (2014)/Knight Frank calculations Data includes crude and refined oil

This increase in tenant demand, AFRICA MOBILE TECHNOLOGY GROWTH FORECASTS has encouraged new schemes to be proposed; Abidjan providing a really good800 example as such a capital city 700 where the proposed schemes are 600 supported by offshore investors.”

Unique mobile subscribers (millions)

and international retailers, such as Shoprite, Pick n Pay and Game.

Outside of South Africa, which maintains the largest and80most mature retail market in Sub Saharan70Africa, Nairobi was highlighted as having60 the greatest volume of modern retail floor space, and 500 50 is likely to continue to be a hotspot for RETAIL OPPORTUNITIES 400 40 development.

The pipeline remains healthy Retail property development has seen 300 30 across the region with large volumes of significant activity over the course of 200 20 modern retail space expected to come the last decade. The concept of the 100 10 online in the near future, despite less shopping mall seems to have taken 0 0 conducive environments in significant African 2010 root 2011in major 2012 2013 2014 cities, 2015 2016 2017 2018economic 2019 2020 Unique mobile subscribers (millions) Smartphone connections (% of total) commodity exporting countries. stated Knight Frank. This development The report goes on to suggest can be attributed to growing consumer Source: GSMA Intelligence that as the sector continues to grow, markets and expansion from domestic Smartphone connections (% of total)

34

AFRICA MOBILE TECHNOLOGY GROWTH FORECASTS

Smartphone connections (% of total)

strong demographic trends with a rapidly rising population at a time when population growth is slowing in other regions place it in a strong position in the long term (you can find more analysis on the nature of this population growth on page 38 of this publication).

Much of this growth is set to occur in Sub Saharan Africa’s cities with Lagos, Kinshasa, Nairobi, Dar es Salaam, Kampala and Lusaka all highlighted by Knight Frank. Furthermore, the report notes that Lagos has likely already overtaken Cairo as the largest city in Africa with its population expected to hit 40 million by 2050.

The increasing urbanisation of Africa and growth in its cities is resulting in an increased need for commercial and residential real estate, and will create new challenges for urban authorities to provide necessary infrastructure.

Urbanisation has often been linked to trends that result in a growing middle class which feeds into this demand further.

Regional hubs such as Nairobi and Lagos have, and will continue to see, higher demand for high quality office space as increasing numbers of multinational companies look to establish a presence on the continent.

Peter Welborn, Chairman of Knight Frank Africa said, “The challenge for both property developers and investor, is to ensure that the impact and timing of planned infrastructure projects on the growth of their capital city, is fully understood. The timing and the use mix being a key component to ensure real success.”

“Real estate demand stemming from oil companies and the associated service supply sector has eased in all the African oil-driven markets,” continued Welborn.

“Conversely, in the retail sector, the demand across Africa, from the growing middle classes has continued to create a marked increase in activity particularly in the Francophone countries.

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26/04/2017 14:39

and competition between retail schemes increases, developers will move to differentiate mall offerings by offering access to international brands, leisure facilities and upscale consumer experiences. Mall development will play a major role in shaping the future of Africa’s urban landscapes, added Knight Frank.

A GROWING MARKET

Many property investment markets in Africa remain small, however, with the noted exception of South Africa. Despite increases in capital investment into Sub Saharan Africa, an important change in recent years has been an increase in flows from South Africa to the rest of Sub Saharan Africa, said Knight Frank.

An increasing number of funds have been established by South African-based investors and developers with the express purpose of targeting the continent beyond South Africa as part of a strategy of hedging against a weak rand and sluggish domestic economic growth.

RMB Westport, whose Real Estate Development Fund closed at $250 million in 2012, which the organisation stated was the target set to respond to the demand for high-grade retail and commercial property in Sub Saharan Africa, has focused on office and retail projects in Angola, Ghana and Nigeria and is currently targeting $450 million for its second fund.

Meanwhile, UK-based emerging markets specialist Actis has been leading the way in terms of providing opportunities to invest in Africa’s property markets. In 2016 the firm announced that it had raised $500 million for its third African property fund, Actis Africa Real Estate Fund 3. This represents the largest amount ever raised for a private real estate investment fund focused on the Sub Saharan African region outside of South Africa, noted Knight Frank.

The report also remarked that there has been strong demand seen for African real estate from Middle Eastern

investors, in addition to strong demand seen from Asia—primarily China and to a lesser extent Japan.

Knight Frank commented that transactional evidence suggests yields are within the seven to nine per cent range for investment-grade assets in the most attractive Sub Saharan markets. However, although this is a somewhat higher yield than many

other regions in the world for prime assets, the attractiveness of these investments is tempered by the higher risk accompanying African markets.

The higher yield levels of these investments is likely to remain in place, stated Knight Frank, supported by strong demand for the limited number of institutional grade assets that come to market.

Spotlight: Ethiopia Ethiopia prohibits foreign investment in the banking, telecoms and financial services sectors which severely restricts investment by international companies, and restricts the development of its retail market.

However, Knight Frank notes that office demand is still strong in Addis Ababa with buildings generally enjoying high occupancy rates. Likewise, the market for high-end apartments in the capital has been buoyant, with apartments mainly being sold off-plan during construction.

The growing consumer market in Ethiopia has prompted market entry from a number of international firms such as Tiger Brands and Unilever, notes the report. However, manufacturing real estate is in general not well developed with most areas with growth potential to found within 100km of Addis Ababa to the south, and along the Addis Ababa-Djibouti railway.

Spotlight: Nigeria Nigeria’s economic slowdown has not slowed its broader demographic trends, with opportunities in retail development still unfulfilled as the middle class continues to grow. The transition of the Nigerian economy to a more modern formal retail format will continue to fuel this demand, added Knight Frank.

On the residential side, there is a surplus of high-end space to be found in Lagos due to over construction during the last development cycle noted the report. This oversupply is also present in the office market for both Lagos and Abuja. Knight Frank observes that although Grade A rents have fallen in recent years there is pent-up demand in the sector due partly to delayed decision-making from companies. Overall however the trend is towards strengthening activity in Lagos.

The rapid depreciation of the naira has hit the industrial market particularly hard. The report added that several multinationals have, to an extent, had to retrench on growth plans, postpone capital projects or sought to sublease warehousing space. Major industrial development is restricted almost entirely to the south west of Nigeria in and around Lagos and in the neighbouring Ogun State.

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35 24/04/2017 14:45

AWARDS

Banker Africa—East Africa Banking Awards 2017 shortlist announced A panel of judges has revealed the shortlist for the third annual Banker Africa—East Africa Banking Awards

S

ome 95 institutions have been named in this year’s Banker Africa—East Africa Banking Awards across 47 key regional and country-specific categories.

Shortlists for the awards were compiled by our group of experts before voting opened on www.bankerafrica.com. The East Africa Awards are designed to reward innovation and the ability to gain market share. The winners were selected by the registered readers of CPI Financial products and services—in other words, your peers in the financial services industry.

The winners of the fourth East African Banking Awards will be announced at a gala dinner to be held on 18 May 2017 at Crowne Plaza Nairobi, Upper Hill, Nairobi, Kenya.

The annual Banker Africa Awards are continent-wide programmes open to all banks and financial institutions in Africa.

The aim of the Banker Africa Awards, broken down into four individual regions, is to recognise outstanding performance and excellence in the financial services industry.

With more than a decade of experience in running Awards programmes for the financial services industry, the publishers of Banker Africa understand the importance of establishing best-in-class benchmarks.

The full shortlist for the awards can be found at www.bankerafrica.com.

36

THE CATEGORIES KENYA COUNTRY AWARDS Best Retail Bank - Kenya Best Corporate Bank - Kenya Best Commercial Bank - Kenya Best Investment Institution - Kenya Best SME Bank - Kenya Best New Online Platform - Kenya Best Emerging Bank - Kenya Best Microfinance Bank - Kenya Best Customer Service - Kenya Best Diaspora Offering - Kenya Most Innovative Bank - Kenya Most Socially Responsible Bank - Kenya Best Digital Bank - Kenya TANZANIA COUNTRY AWARDS Best Retail Bank - Tanzania Best SME Bank - Tanzania Best Corporate Bank - Tanzania Best Investment Bank - Tanzania Best Commercial Bank - Tanzania Best Emerging Bank - Tanzania Best Customer Service - Tanzania UGANDA COUNTRY AWARDS Best Retail Bank - Uganda Best Corporate Bank - Uganda SUDAN COUNTRY AWARDS Best Corporate Bank in Sudan

RWANDA COUNTRY AWARDS Best Bank in Rwanda ETHIOPIA COUNTRY AWARDS Best Retail Bank - Ethiopia Best Corporate Bank - Ethiopia MAURITIUS COUNTRY AWARDS Best Retail Bank - Mauritius Best Corporate Bank - Mauritius EAST AFRICA REGIONAL AWARDS Best Retail Bank - East Africa Best Corporate Bank - East Africa Best Commercial Bank - East Africa Best Investment Bank - East Africa Best SME Bank - East Africa Best Customer Service - East Africa Most Innovative Bank - East Africa Innovation in Financial Inclusion Best Islamic Bank - East Africa Best Microfinance Institution - East Africa TECHNOLOGY AWARDS Best Risk Management Technology Most Innovative Technology Provider Best Merchant Payment Technology Best Digital Banking Solutions Best Fraud Detection Technology

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26/04/2017 15:53

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15/02/2017 16:38

OUTLOOK

Africa’s growing pains Creating new economic opportunities for young Africans is key to securing growth on the continent, says the Mo Ibrahim Foundation in a new report

T

he Mo Ibrahim Foundation’s 2017 Forum Report, titled Africa at a Tipping Point, found that although the continent is still making progress, it is facing a real risk of falling behind.

Above all other considerations the report noted that future growth will depend on Africa’s ability to harness the energy and expectations of the continents young people.

The report stated that 60 per cent of Africa’s population is under 25 years of age and that by 2050 the continent will be home to 452 million people between the ages of 15 and 24, representing a doubling of the 230 million recorded in 2015. These numbers represent a huge opportunity for the continent going forward, but are currently being squandered.

Mo Ibrahim, Chair of the Mo Ibrahim Foundation, said, “The energy and ambition of Africa’s young people is our greatest resource and best hope for strengthening our continent’s progress.

But their expectations could turn into frustration and anger unless they find a job and get a chance to influence their own future. Africa stands at a tipping point. The decisions taken now will decide whether our continent continues to rise or falls back. More than ever, wise leadership and sound governance are key.”

38

GDP growth of many African countries has been fuelled by commodities in recent years but has created almost no jobs in its wake.

Youth unemployment remains high in many African countries despite real GDP growth of 4.5 per cent in the last 10 years. Exceptions to this rule can generally be found in countries that are not resource-rich that have also managed high economic growth.

Economies that rely more on agriculture were particularly noted in the report, with both Ethiopia and Tanzania specifically experiencing lower levels of youth unemployment in comparison to other countries on the continent.

Furthermore, despite trends pointing to young people spending more years in school, too few have been equipped with the skills that the economy needs, noted the report. A slightly positive correlation was found between levels of youth unemployment with the gross enrolment ratio in tertiary education between the years 2006 and 2016.

Some evidence can be provided in support of this with Egypt and Tunisia having some of the most educated populations on the continent noted in high gross enrolment ratios in tertiary education, but with both countries also facing some of the highest youth unemployment rates on the continent, at greater than 30 per cent.

Speaking at the 2017 Ibrahim Governance Weekend, Ibrahim further stated, “Young people in Africa are becoming disillusioned. What will happen if we do not provide jobs when the tsunami of young people currently in education starts looking for work? We will see further migration out of Africa and an increased threat of extremism.

African governments and businesses must come together, as a major of urgency, to ensure that we are equipping our young people with the skills they need take control of their futures.”

Tertiary-educated people have the highest migration rates, the report noted. More than half tertiary-educated citizens of Cape Verde, Gambia, Mauritius and Sierra Leone chose to leave their country. Furthermore, between a third and a half of the tertiary-educated populations in Ghana, Mozambique, Liberia, Kenya and Uganda also choosing to leave, stated the report. Continued high levels of migration from educated young Africans represents further risk for the future of the continent as these individuals are key in securing future economic growth.

DEMOCRACY TESTED

The nature of African democracy was also covered in the report. It noted that although the number of ‘free and fair’

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youngest continent

frica’s youth map

1.2 billion and is expected to more time: has increased over the last 1.2 billion and iselections expected to more 10 years, voter turnout has been on lion people projected to join time: the decline and the scepticism of elected representatives on the rise. ican.

In the last decade lion people projected to join thenearly 70 per cent of Africa’s population went through ulation ican. will be African. either direct or indirect presidential elections resulting in a change of Head

ungest continent: ulation will be African. of State. Although this provides some

positivity, it does mean, however, that

15 andcontinent: 24 yearsinof2016 age), amounted more than a quarter of the ungest rica’s population is currently 1.2ofbillion and is expected to more population the continent has had a 2anbillion population in Africa. by 2050. By thattime: has not changed in the last 15double and 24 yearsleader ofwhich age), amounted 10 years, with some countries being population will 25 projected to join the thanpopulation half of thebe 2.4below billion people 2sMore billion Africa. led byinthe same Head of State for much

global population will be African. longer than that.

sA population will be below There is an25 average age gap of 46 quarter of the world’s population will be African. years between people ica’s youth will almost double, and rulers, with the average median age of Africans at rica is already the world’s youngest continent: llion. to employing the youth and energy 20 and the average of Heads of State at ica’s youth will almost double, of Africa’s growing population cannot 66 years, which only works to increase In 2015, the youth (between 15 and 24 years of age), amounted ly half of the world’s youth (47%) be realised it may represent a serious doubts as to whether leaders can work llion. to almost one fifth of the 1.2 billion population in Africa. destabilising force on the continent, in the interests of their citizens. with 632 million people – will be threatening gains made in recent years.

The report labelled the combination By 2050, half the continent’s population will be below 25 ly half ofbigger the world’s youth (47%) n times than Europe’s.

This report noted that this immediate of a lack of economic opportunity, years old. with 632 million people – fatigue will be and political challenge must be met by committed democratic Between and than 2050, Africa’s youth will almostbrew’, double, leadership and robust governance in disenfranchisement a ‘toxic n times2015 bigger Europe’s.

UNDESA

order to enable Africa’s young people to build create a positive future for terrorist attacks in Africa over the past the end of the century, nearly half ofUNDESA theand world’s youth (47%)the continent. decade.

If leadership commitment

compounded by increasing growing from 230 tofurther 452 million.

KEY

% of population aged 15-24 KEY % of population aged20-24 15-24 19-19.9 20-24 14-18.9 19-19.9 KEY

14-18.9

% of population aged 15-24

MIF based on: UNDESA 20-24

19-19.9 Source: Africa at a Tipping Point, 2017 Forum Report, Mo Ibrahim Foundation.

MIF based on: UNDESA 14-18.9

l be African. Africa’s youth – with 632 million people – will be ger than Asia’s and nearly ten times bigger than Europe’s.

UNDESA page 38-39 Outlook catering to youth.indd 39

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OUTLOOK

An ongoing drought has been causing agricultural problems in East Africa (CREDIT: PIYASET/SHUTTERSTOCK).

East Africa trumps drought Despite environmental challenges, East Africa continues to shine

D

espite challenges in the region, East Africa has continued to maintain growth, according to a new report from the ICAEW (Institute of Chartered Accountants in England and Wales). The report, entitled Economic Insight: Africa Q1 2017, commissioned by ICAEW and produced by partner Oxford Economics, aims at producing a snapshot of the region’s economic performance. It focuses in particular on Kenya, Tanzania, Ethiopia, Nigeria, Ghana, Ivory Coast, South Africa and Angola.

In the report, ICAEW argues that the authorities from various East African countries have managed to mitigate the worse effect of an ongoing drought plaguing the region through the use of

40 page 40-41 Outlook.indd 40

alternative channels, such as providing fiscal stimulus in tandem with a loosening of monetary policy.

Michael Armstrong, Regional Director, ICAEW Middle East, Africa and South Asia said, “Overall, economic growth in East Africa remains strong despite the drought. Infrastructure development continues to stimulate industry across the region, while expanding services to the largely un-serviced markets remains the key driver behind growth.”

From a GDP growth perspective the report states that Tanzania will see real GDP growth of 6.9 per cent, Uganda at 6.8 per cent, Ethiopia at 6.7 per cent, Rwanda at 6.6 per cent and Kenya at 6.4 per cent.

Uganda has been hit hardest by the drought, seen in decreased agricultural production for the first three quarters of 2016. However, the country has notably loosened its monetary policy throughout the first quarter of the year to combat the economic fallout. A similar policy has been followed in Rwanda. Meanwhile Ethiopia has instituted a substantial fiscal stimulus programme. The report notes that the construction sector saw a significant 25 per cent expansion throughout fiscal year 2015/16.

In addition, continued poor crop production has had a marked impact on food inflation in East Africa, the report continued. Although the inflationary pressures are not as pronounced as they have been historically, it is important to

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TOP AFRICAN RECIPIENTS OF US AID DISBURSMENTS, 2016 Etheopia South Sudan Kenya Nigeria Uganda Liberia DRC Tanzania South Africa Malawi

730.911332 503.215243 461.92736 358.462811 342.007462 318.640226 301.269749 297.048782 289.063184 279.364661

0

100

200

300

400

500

600

Source: Economic Insight: Africa Q1 2017

US AID FEARS

note that the current rise in inflation is due almost entirely to the ongoing effect of the drought. ICAEW states that non-food price inflation has remained subdued, suggesting other factors are not playing a key role. East African agricultural production has traditionally been highly dependent on weather, with rainfall patterns playing a key role in agricultural production and, consequently, food prices.

The US plays a key role in Sub Saharan African aid as part of bilateral official development aid. In 2015 the US donated some $9 billion, more than twice the amount donated by the UK, the second biggest donor. As such, the Trump presidency has created fears over whether nationalistic and isolationistic rhetoric will result in a reduction of aid flows—a result which will likely have significant consequences for Africa’s ongoing development.

For East Africa in particular the effect could be more pronounced.

As noted in the chart accompanying

Michael Armstrong, Regional Director, ICAEW Middle East and Africa

800 $m

this article of the top 10 recipients of US aid disbursements in 2016, East African nations hold six positions.

This would mean that a cut in funding would represent a significant loss for the region.

The report continues that further risk for Africa from President Trump can be seen in the hostility that the administration has targeted towards the UN, most notable of which is the threat to cut funding. This could cause the UN to be unable to fund missions to Africa, with ICAEW highlighting more dangerous war zones, and further risks to refugees as possible outcomes.

Free trade is another area which may come under fire if isolationist and mercantilist language by the Trump administration is followed through. In particular, the report comments that this could result in changes being made to the African Growth and Opportunity Act (Agoa) which currently allows dutyfree access to the American market for the exports of 43 Sub Saharan African countries.

African exports do provide cheap raw materials for the US domestic manufacturing industry; however current trends are not favourable. The report remarks that imports under the Agoa have declined from $82 billion in 2008 to some $26 billion in 2016, due mainly to the falling value of African oil exports to the US, meaning that the overall value of the trade may be too small.

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41 24/04/2017 14:51

TRAILBLAZER

A fully deployed SolarTurtle.

The inside of a SolarTurtle has been setup to charge batteries and devices.

Clean, mobile, secure

SolarTurtle is looking to solve one of the big issues afflicting decentralised green energy solutions—security

S

olar power has been looked upon as a way of electrifying some parts of Africa. In particular rural areas are primed to benefit from advancing efficiency gains in solar panels coupled with lowering costs. However, in crime ridden areas across the continent these traditional solar photovoltaic (PV) installations have been plagued by theft.

SolarTurtle, a start-up based in South Africa, is looking to solve this issue.

Schools in South Africa, noted James van der Walt, CEO, SolarTurtle, have especially suffered from solar panel theft. This is a particularly salient point as regional governments have begun to mandate that public schools have access to laptops and tablets, such as Gauteng provinces e-Learning Solution, which has created a requirement for schools to be able to charge the batteries on these devices.

“I went to school after school after school and they all gave me the same story—one morning they arrive at school to find that their whole solar system was gone.

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I went to 12 schools and 11 of them had the same issue,” he said.

This issue was not just limited to schools, van der Walt noted, with any system large enough to vandalise also being a target, including government buildings. “In any of these remote areas there’s a big black market and demand.

People are desperate so they will take anything that isn’t properly bolted down to the ground,” he continued, “I realised that it’s not a technology issue, but more of a security issue and that’s how I came up with the SolarTurtle idea.”

Van der Walt came up with a simple solution to the inherent security problem of solar panels—to put them inside shipping containers. Much like a turtle, the system is designed to retreat into its ‘shell’, the shipping container, for safety.

“I thought it’s obvious, I should use containers. They’re plentiful, easy to come by and already a mobile box, as they are already designed for transport and to ship. So I figured it was an obvious solution that as a turtle we

needed a shell, and like a turtle we need something with security and the container fit the bill.”

During the day when electricity is required, and to charge the batteries in the SolarTurtle, the panels unfold from inside the container, absorbing the sunlight and creating green energy. At night, when traditional solar systems are typically under the greatest threat of being stolen or vandalised, all of the equipment can be folded inside the container—providing the necessary security to protect it overnight.

THE CORPORATE SIDE

Although van der Walt’s passion is for the green economy and empowering rural communities with SolarTurtle’s portable electrification solution, the company is also invested in corporate partnerships through its PowerTurtle product.

“The corporate business is where we provide energy platforms for banks buying office space or telecoms, or any business. Anywhere that you might

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Part way through the installation of a SolarTurtle system.

want to secure an energy platform we can drop a box, flip a button and deploy all the solar panels and then when they are finished you can push a button and the panels will fold away again allowing them to move onto to the next location if so desired.”

according to van der Walt, the idea is that instead of a school purchasing a SolarTurtle, the container is instead run by a member of the community, with SolarTurtle focusing on women as its entrepreneurs, to create jobs and increase the sustainability of the model.

I realised that it’s not a technology issue, but more of a security issue and that’s how I came up with the SolarTurtle idea.

—James van der Walt

The company sells these systems at a profit, or lease them to a corporate and then uses the money to finance the social side of the business. Typically SolarTurtle looks at rural communities that don’t have the financial capability to get a loan from the bank to purchase a container and instead will fund the system itself—allowing the community to benefit from a SolarTurtle.

“They still have to rent the place and pay for the electricity they use but we then use that money to do maintenance on their container, as well as provide support to run their businesses off the back of the container,” said van der Walt.

The model for creating the SolarTurtle as a business run by the community is a relatively new part of the vision for the company. Known as a ‘Solar Kiosk’

“Now the school doesn’t have to worry about it; it’s the problem of the woman in charge of the system. She’ll make sure the SolarTurtle is okay, that all the batteries are charged and checked because her livelihood now depends on it,” he said.

In comparison, van der Walt added, if the system was given to schools the incentives to look after the system and maintain its security are not quite as strong.

“This ties in with my original vision of using the green economy to create jobs and also specifically women entrepreneurs that never had the opportunity before for various reasons,” said van der Walt.

ADVANCING TECHNOLOGY

Although when asked as to what impact the continuing progression of

technology will have on SolarTurtle’s business van der Walt pointed to the twin factors of decreasing cost and increasing capacity of solar panels, it was from far the most important advancement coming he noted. Instead, the biggest trend coming that will help SolarTurtle in its goals will come from the battery side with increasing availability of lithium-ion batteries.

“Lithium batteries are going to be the next big thing. One of my biggest problems at the moment is that we are currently relying on lead-recycled batteries that typically only have a two-to five-year lifecycle. Going up to a rural community and replacing batteries if they go down is a logistical nightmare—it can take weeks to plan to go up there and the batteries are very heavy so you can’t just carry them in there with your suitcase.”

In contrast, lithium-ion batteries are small, lightweight and long-lasting. The battery can last for a decade or longer, pointed out van der Walt, allowing SolarTurtle’s operations to become much more streamlined and reliable.

TO THE FUTURE

For the future van der Walt is first looking to sell additional PowerTurtles to finance the SolarTurtle projects he has envisioned. In terms of expanding the operations of the business he is looking at moving beyond the border of South Africa.

“Mozambique and Zimbabwe are high on our radar as expansion countries, but we are also looking at West Africa— Nigeria and Cameroon—as well as East Africa to Kenya and Rwanda. For next year let’s see if we can get at least two pilots up and running in those countries to prove the concept and see how it works with cultural differences.”

“For Africa we’re spoiled by options, while we go over our borders. I’m very excited to see how the SolarTurtle functions in those environments.”

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TECHNOLOGY

Playing the long game in payments Banks will need to work with payment service providers, rather than trying to take them head-on says Gerhard Oosthuizen, Chief Information Officer, Entersekt

W

hile the industry debates the minutia of in-app or in-browser ecosystems, and which will ultimately capture the market, the one thing we can count on is that we’re going to see massive growth in the volume and speed of payments.

That means any organisation hoping to provide payment services must have security at the heart of their offering.

There is simply too much money on the line for it to be an afterthought.

PAYMENTS ARE BIG, VERY BIG

The payment industry has been growing steadily. Mobile payments in particular are exploding as more and more consumers trust and embrace the convenience.

In 2015, US mobile payments transactions reached approximately $8.7 billion. This is predicted to grow to $142 billion by 2019. The number of people in the EU who now regularly use their mobile device to make payments has tripled since 2015, growing from 18 to 54 per cent.

Banks are trying to keep up, many of them launching their own mobile payment solutions. But the agile, unconstrained world of fintech is proving to be the hotbed of innovation, delivering new ways of making

44

payments faster than you can say “secure my transaction”.

The big smartphone manufactures are also leaping into the fray, shipping their phones with proprietary payment solutions built in. So committed to the business benefits of mobile payments, Samsung Pay has gone a step further and launched a loyalty scheme (Samsung Rewards) to encourage additional spending across its platform.

This is hardly surprising. According to TrendForce, the total revenue of the worldwide mobile payment market in 2015 reached $450 billion.

Moreover, by the end of 2016, revenue is estimated to hit $620 billion. That is a year-on-year growth of a whopping 37.8 per cent.

IN-APP PAYMENTS ALL THE VOGUE—BUT FOR HOW LONG?

The trend of consumers being increasingly comfortable with in-app payments has been validated by a recent Gartner survey. According to the research house, mobile app users spend 24 per cent more on in-app transactions than on upfront app payments.

However, the speed at which the digital payment arena is being disrupted by new innovation is so startling, that before banks have had

a chance to wrap their heads around the in-app payment, they are already dealing with the rise of a new set of entrants and ecosystems.

User trends show we are spending increasing amounts of time inside a small number of messaging apps and social networks. Facebook, WhatsApp, WeChat and others are building their own ecosystems to maximise the spending power of their global communities. Each ecosystem will have to ensure they have security and payment facilities built in.

While Facebook and others are consolidating their services into the closed app ecosystems, which they can control, Google is throwing its weight behind Instant Apps. Android Instant Apps could soon allow users to run discreet sections of mobile apps without ever visiting app stores or installing any new programmes. The service doesn’t require new apps to be developed, but rather subsections of native apps are preloaded as required on users’ devices.

Building on its success with Apple Pay, the Cupertino company, meanwhile, has taken its idea of a seamless payment environment a step further with the launch of its Mac operating system with Apple Pay as an in-browser payment system.

Apple users will be able to buy

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products by holding their finger on the Touch ID scanner located on the Touch Bar of their Macbook Pro. The desktop payment system works in tandem with their iPhones for authentication purposes.

To add to this, digital assistants such as Siri and Alexa are enabling voice initiated ecosystems from which payment and other functions can be initiated.

While it’s remains to be seen which of these monoliths will win the app war, it’s clear that if you’re only thinking about your own app, you’re already outdated.

More particularly, we believe the ultimate winner will be the company most able to collaborate with niched players, offering the most relevant services over the most secure platform

THE UBER MOMENT HAS COME AND GONE

It seems almost impossible for the banks to compete headon with such a vast array of new payment methods.

Driven by customers who want the convenience of a payment button on their keyboard, banks will have to work with payment service providers, rather than taking them head-on. But in order to do this, they will have to ensure their systems are enabled to play along.

The financial industry debate in 2015 and 2016 has revolved largely around how traditional service providers will deal with the increasing disruption from fintech.

Speculation as to what the “Uber moment” for banks will be has dominated the speaker circuit.

The fact of the matter is that this Gerhard Oosthuizen

moment could well be the apparent removal of payment from the shopping process altogether. Amazon Go is a prime example of how customer experience (CX) professionals are recognising that the traditional (and even the current app) payment process is cumbersome and should be streamlined.

The demand for a near frictionless experience will mean allowing a customer to move from consideration to completion without experiencing the hassle of opening a payment app at all.

In the end, the point of payment step is unnoticeable—all while keeping the customer safe.

WHERE DOES THIS LEAVE THE BANKS?

The new payment landscape demands that wherever a customer may find themselves transacting, no matter what the device, the right protection must be in place. There must be a secure link to the issuing bank that will prevent man in the middle attacks.

There must be transaction signing and digital certificates, which can be stored and traced. This will be the minimum requirement and, given the speed of the fintech innovation, banks will need to be ready for this technical challenge if they hope to stay relevant at all.

Banks have their hands full dealing with competition from every side.

Moreover, they also face increasing regulation demanding that they open up their APIs to allow for even faster innovation and competition.

The speed at which innovation is happening requires that they take the most holistic view possible when it comes to security. By deploying an authentication platform that enables these different permutations, they will be able to accommodate any payment option thrown at them. They will be in a position to pick and choose who they partner with based on what’s best for their business and their customers.

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TECHNOLOGY

Payment management in the 21st century—it’s time to change the back office The focus of banks on improving front-end digital offerings has left the back office lacking, says Mick Fennell, Vice President, MEA, Volante Technologies

H

ow many banks in Africa have invested in new digital channels in the last five years, or intend to make investments in those channels over the coming five years? I’m afraid it’s a rhetorical question, so no prizes for getting it right. Frankly, if any bank in Africa is not in either group, then they can say goodbye to a significant part of their business by the time the next five years are up.

There is no argument amongst banks that the digital experience, and the digital services that the bank offers in its customer channel, is the most important competitive space in the industry right now. Consequently, enormous focus, time, and investment is being spent on the digital customer channel strategy in the bank, be it for retail, corporate, or both.

The overwhelming focus of this work relates to the customer experience when sharing information between multiple sources and services in the online or mobile space, including the initiation and interaction with ongoing transactions. The vast majority of the digital transactions in question are payments. How to make it easier to initiate a payment? How to link activities in the digital world to the payment process? How to on-board mass payment requests more efficiently from

46

businesses or government entities? How to deliver payment status updates to the channel, device, or social media platform of the customer’s choice?

The problem is that this focus of time and investment in the digital front-end has led to a disconnect and mismatch between the capabilities in the customer channel and the transaction processing proficiency of the systems in the back office.

Every one of the payments captured in the digital channel has to be processed inside the bank, and the legacy systems in bank’s back offices throughout the African continent are starting to struggle to keep up with the demands of the dynamic front-ends.

It’s largely because most banks in Africa currently process their payment transactions through their core banking systems. The core system will have a module dedicated to managing the lifecycle of the payment, be it a domestic transfer, debit order, international transfer, remittance, etc., both outgoing and incoming.

There are definite advantages in this approach, well, at least there used to be definite advantages but not so much anymore. The payment module in the core system was closely integrated as part of the system. Consequently, key sources

Mick Fennell

of static data required to process and manage the payment were easy to access and use, e.g. account details, beneficiary details, FX rates, customer information, charges, etc.

Unfortunately, these advantages have gradually been outstripped by the disadvantages that core systems inherently possess. As payments markets changed into more dynamic, diverse environments, where speed of change, flexibility, and openness are keys to success, especially when keeping up with the pace of change in the customer channel is paramount, monolithic and unwieldy core platforms have created a major barrier to longer term success.

Successful payment management in today’s digital banking age is ever more dependent on how agile

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one’s environment is. The orchestration of the payment transaction lifecycle within the back office of the bank is under pressure to continually change. New services have to be added to existing process flows, new validations have to applied to ensure compliance with the latest regulations, new channels with new payment streams have to be on-boarded and managed.

All of this change is happening in a world where volumes are increasing at 18 per cent per annum in the emerging markets and customers are becoming more sophisticated and more demanding, especially for real-time execution and updates.

Core banking systems can no longer be relied upon to manage the lifecycle of the payment and service the dynamic appetite of the customer channels and clearing mechanisms.

Increasingly in Africa, to address this challenge, banks are turning to the same solution strategy that has taken hold in markets such as Europe and America. Back office system landscapes are being re-architected to introduce dedicated enterprise payment hubs.

These focused solutions act as configurable, agile, open integration platforms with in-built knowledge of the payment transaction lifecycle.

Employing the extensive use of business rules and sophisticated development tooling to support agile configuration, these platforms are built to manage constant change, in both service orchestration and transaction messaging.

Managing the lifecycle of a payment inside the back office of a bank generally requires the transaction to move through four phases of processing, and each of these phases has various activities that may or may not be relevant to a particular payment.

The success of the payments hub is therefore heavily dependent on how easily it enables the bank to define and change the processing flow, and the services applied to each and every

payment transaction as it moves through the lifecycle, so that the flexibility and dynamism being provided to the customer in the front-end digital channel is supported and accommodated by similar flexibility and dynamism in the back-end processing service.

Each one of the processes listed in Table 1 are not only subject to constant changes in both how and where in the flow they process and thus must be highly configurable, they also rely heavily on interacting with multiple external services, either within the bank itself or with external services.

Again, this need for open, flexible, agile integration is just not supported in the DNA of core banking systems but is a fundamental characteristic

of the latest generation of enterprise payment hubs.

That is why, in the 21st century, back office architectures are changing to drive payments management into its own dedicated system domain, an enterprise payments hub, which is outside of the core banking system.

Without embarking on such a transformational change to one’s back office processing environment, and thus revolutionising one’s ability to efficiently cope with the digital payments age, African banks are seriously risking their sustainability as competitive and relevant payments processors in their chosen markets.

So without further ado, now is the time to change the back office.

Table 1:

CAPTURE

ANALYSE

EXECUTE

DELIVER

Verify Authenticate Un-bulk Transform Format Validate

Business Validate Enrich Repair Sanction monitor Investigate Funds check Authorise Warehouse

Calculate charge Apply FX Route Post Notify

Batch Prioritise Release Transform Monitor Confirm Reject

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INVESTMENTS

Seychelles puts spotlight on leasing A two-day forum held in Seychelles focused on improving the leasing sector

The event consisted of a mix of more than 150 local and international participants.

T

he IFC (International Financial Corporation), a member of the World Bank Group, the Central Bank of Seychelles and the Seychelles Investment Board, held a two-day forum on leasing investment under the theme of “Unlocking access to finance, investment and economic growth through leasing”. The Forum was aimed at promoting the introduction of the necessary tools to create a sustainable and dynamic leasing sector in Seychelles.

The forum gathered some 150 participants at both a local and

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international level, with government officials, international leasing experts, financial institution, and equipment suppliers all in attendance. Attendees were encouraged to discuss and share experiences about how to leverage the relatively untapped potential for the leasing sector in Seychelles.

Caroline Abel, Governor, Central Bank of Seychelles, said, “Leasing holds the potential to revolutionise the way businesses access finance. It is as much an innovative financing tool— offering micro, small and medium-sized enterprises much needed financing to invest in equipment—as it is a catalyst

to increased investment, employment, and economic growth.”

In a release, IFC noted that although Seychelles boasts the most financially included country in SADC, at 94 per cent banked, a lack of credit history or collateral required for traditional loans and financing make starting or expanding a business difficult. As such, leasing represents an opportunity an as innovative alternative form of financing particularly suited to small businesses that will enable them to finance equipment in order to do so. This suggests that the burgeoning Seychelles leasing sector is a potential untapped opportunity for investment.

Angelique Antat, CEO, Seychelles Investment Board, said, “Seychelles’ tourism, agriculture, fisheries, renewable energy, manufacturing, transport and financial services sectors, amongst many others are all ripe for investment. Leasing can help harness these opportunities.

Investing in Seychelles at this juncture is a smart choice considering the introduction of innovative financial instruments.”

“Since 2014, IFC has partnered with the Central Bank of Seychelles to help lay the foundation necessary to create a flourishing and sustainable leasing market,” added Satyam Ramnauth, IFC Country Manager for Comoros, Madagascar, Mauritius and Seychelles.

“Increasing awareness and participation of all local and regional stakeholders in leasing business development is key to supporting new funding opportunities for private sector development in Seychelles.”

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THE VIEW PICTURE OF THE MONTH

Ángel Gurría, Secretary-General, OECD opened this year’s OECD Global Forum on Development.

The event focused on taking stock of how existing initiatives using the power of the private sector to support the Sustainable Development Goals, as well as exploring new partnerships that can assist to mobilise additional resources and how the OECD can help in this regard. (CREDIT: ANDREW

WHEELER/OECD/FLICKR)

POLL

This month we asked our readers on bankerafrica.com and twitter @bankerafrica...

What should African banks focus on?

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FINANCIAL INCLUSION GOVERNANCE REGULATION FINTECH INTEGRATION DEVELOPING NEW PRODUCTS INTERNAL EXPANSION

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