#46 - July 2017

JULY 2017 | ISSUE 46

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ISSUE 46 | JULY 2017

A return to form

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Ghana Ghana looks looks set set to to get get back back on on track track A CPI Financial Publication

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OPINION Ar ficial intelligence & decision making

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MOBILE LOANS Keeping score

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Dubai Technology and Media Free Zone Authority

A return to form Ghana looks set to get back on track

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JULY 2017 | ISSUE 46

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EDITOR’S LETTER

H

ello and welcome to the July issue of Banker Africa.

Our cover this month features the West African nation of Ghana. A country famed for its cocoa beans, it has struggled in recent years with falling commodity prices. Lower oil prices and disputes over the second largest fields in the country with its neighbour Côte d’Ivoire have also hurt the country’s performance. However, the outlook is much more favourable with a significant return to growth expected over the next couple of years. Turn to page 20 to find out more.

Mobile loans have become an increasingly fast growing sector in countries that have already seen fast expansion in the realm of mobile payments— particularly in Kenya with M-Pesa’s importance. On page 25 you can find an interview with Billy Owino, the CEO of TransUnion Kenya, a credit score provider. Their new product, the Mobile Loan Scorecard, aims to give banks and financial institutions the information they need to be able to efficiently and effectively disperse loans and crack down on the amount of non-performing loans sitting on financial statements. Owino himself stated that, “we are as good as our data,” an allusion to the benefits that a greater use of data analysis can provide.

SafeMotos, a Rwandan based start-up is the topic of our Trailblazer piece this month. The company is looking to transform the transportation infrastructure in Kigali, the country’s capital, by providing a similar service that a customer might experience from Uber, but aimed at the highly prevalent motorcycle taxi industry. “I think the fact that we’re in an era of $50 Android smartphones is one of the biggest paradigm shifts in the world that has been severely underutilised,” said Barrett Nash, CEO & Co-Founder.

Explore what banking could be

Until our next issue,

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IN THE NEWS 6 News analysis: Privatisation at the World Bank 7

Essential financial news from around the continent

Trusted mobile app security and authentication solutions

10 Spotlight: Morocco 11 Spotlight: Rwanda by numbers

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HAPPENINGS 12 Etisalat to exit Nigeria

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ISSUE 46 | JULY

44 MAY 2017 | ISSUE a.com

2017

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2017

A return to form

ISSUE 44 | MAY

Ghana looks set to get back on track

Continued growth for Tanzania New numbers point to a positive

BA bleed guide.indd 1

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BA bleed guide.indd

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OPINION Ar ficial intelligence & decision

making

25

MOBILE LOANS Keeping score

Zone Authority

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Ghana Ghana looks looks set set to to get get back back on on track track

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and Media Free

SECTOR FOCUS results Micro-funding, macro

TRAILBLAZERS Building the future

Publication

OPINION in the banking Trends and policiesin Kenya—2017 & finance industry

A CPI Financial

32 14

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Dubai Technology

New numbers point

INSIDE:

A return to form

Dubai Technology

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and Media Free

th Continued grow ia outlook zanpositive for Tanpoint to a

Zone Authority

outlook

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JULY 2017 | ISSUE 46

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46

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

OPINION 14 Artificial intelligence applications

to bolster risk culture at panAfrican banks Ari Lehavi, Executive Director, Moody’s Analytics on how advanced learning and AI can improve decision making

MARKETS 16 Opportunities knock

The Head of Primary Markets for the JSE, Prejelin Naggan, speaks to Banker Africa about the exchange’s future

COUNTRY FOCUS 20 A return to form

Having experienced its lowest growth in decades in 2016, Ghana looks set to get back on track

MOBILE LOANS 25 Keeping score

TransUnion Kenya CEO Billy Owino explains the reasoning behind the company’s Mobile Loan Scorecard

TRAILBLAZER 36 Revving up Rwanda

TECHNOLOGY 38 Machine learning—taking your

security team to the next level Cybersecurity can be augmented by machine learning, says Raj Samani, Head of Strategic Intelligence, McAfee LLC

40 Can blockchain really snatch up

Renaissance Capital believes European struggles can be positive for MENA countries

TRADE 30 China: here to stay

The Africa-China economic partnership is bigger than anyone thought, says McKinsey & Company

GOVERNANCE 32 African governance surges

Most countries in Africa maintain robust corporate governance codes of practice, says a new report

to 40 per cent of your revenue?

Darryl Proctor, Product Director, Temenos, discusses the appeal of block chain technology for banks

CASE STUDY 42 How Standard Bank is leveraging

DEMOGRAPHICS 27 Demographic windfall

The CEO & Co-Founder of SafeMotos, Barrett Nash, talks about his aim to transform the Rwandan transportation industry

technology to achieve truly digital banking Banker Africa spoke with Standard Bank is leveraging technology to achieve truly digital banking to understand how technology has helped the bank

INVESTMENTS 44 Alternative growth

Alternative investments are on the rise in MENA, says Paul Isaac, Executive Director, Gulf Credit Partners at Gulf Capital

46 Funding the future

Eva Warigia, Executive Director, EAVCA talks to the future of private equity and VC in East Africa

THE VIEW 50 Photo and chart of the month

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

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analysis

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Privatisation at the World Bank How is the World Bank’s shift to a model of private investment going to change development outcomes?

President of the World Bank Group Jim Yong Kim (CREDIT: RYAN RAYBURN/WORLD BANK).

E

arlier this year Jim Yong Kim, the President of the World Bank Group announced in a speech that the bank’s vision for 2030 will change the current operating nature of the institution. No longer will the World Bank aim to be the lender for development, instead the bank will aim to become a broker to unlock huge amounts of private investments.

The institution will seek to facilitate governance and policy changes in countries in order to make them more attractive to private investment, rather than its traditional means of public funding. Public development funding will now seek to complement this, rather than the entirety of the bank’s function. The document that the World Bank released alongside

this announcement states that, “Only where market solutions are not possible through sector reform and risk mitigation would official and public resources be applied.”

Writing on The Conversation, Steven Friedman, Professor of Public Studies at the University of Johannesburg, noted that, “So public development funding will be used only where it cannot attract private investors to poorer countries. Since Kim insists it can unlock “trillions” of dollars which can transform developing countries, it seems unlikely to reach for public funding in a hurry. So it seeks now to act as a broker for private investment, not public development.”

The bank’s critics argue that due to the nature of private investment demand for returns, the goal of reducing poverty

and promoting development may be lost. Friedman adds, “The bank’s shift abandons this role and places the fate of the global poor largely in the hands of private wealth. It seeks not to find ways in which private money can serve public needs but how public needs can shift to meet the demands of private money.”

Private investment is incredibly risk-averse, meaning that it has been difficult to secure for traditional developmental objectives in the past—especially with investor lack of knowledge of developing markets. Kim’s argument is that there is a large idle pool of this private capital which could be turned towards development in poor countries should the proper steps be taken to address the problems which investors take issue with.

However, as has been stated before in both this publication and others, the corporate-led model of the Bretton Woods multilateral institutions has been known to cause problems from a social perspective. Profit-orientated investments have not been known in the past to secure societal development objectives in the same way that specific development aid has been able to.

Despite this though, the shift in the way in which the World Bank will conduct itself needs to be viewed through the lens of the changing world in which the institution operates. The number of emerging countries which are relying on aid and development financing from the IMF and World Bank has drastically reduced in recent years as private investment has increased in the form of Government issued sovereign bonds.

Further competition from other institutions, such as the Chinese-led Asian Infrastructure Investment Bank may have also caused the World Bank to reconsider what its role now is. Time will tell as to whether the move will be best for just the institution, or the people it intends to serve.

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RATINGS REVIEW BANKS AND BUSINESSES Moody’s Investors Service has assigned first-time long- and shortterm Local and Foreign Currency Deposit and Issuer Ratings to Union Bank of Nigeria of B2/Not Prime, and a b3 Baseline Credit Assessment (BCA). The overall outlook on the bank’s ratings is stable.

Moody’s Investors Service has assigned first-time B1/Not Prime global local-currency deposit ratings to Equity Bank Kenya and the Co-operative Bank of Kenya. Equity Bank’s and Co-op Bank’s B1 global local-currency long-term deposit ratings are fully aligned with the B1 (Stable) rating of the Kenyan government. Both banks reach this rating level solely based on their standalone strength, as indicated by their b1 standalone BCAs, Moody’s highest ratings in Kenya.

Moody’s Investors Service has assigned first-time Baa2/Prime-2 issuer ratings to Botswana Development Corporation (BDC), with a stable outlook on the Baa2 long-term ratings. The stable outlook reflects both the stable outlook on Botswana’s A2 sovereign rating and Moody’s expectations that BDC’s financial metrics—specifically its capital and liquidity buffers—will remain solid.

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ON THE RECORD EBank facilitates digital banking with Fiorano

Fiorano Software has announced that EBank, a Namibian commercial bank, has successfully implemented Fiorana ESB to integrate its Temenos T24 core banking system.

Emirates NBD release Egypt PMIT: New export order growth continues in June

The latest survey data indicated that business conditions in Egypt’s non-oil private sector continued to deteriorate during June, but at a modest pace that was broadly in line with the trend observed throughout the second quarter of 2017.

AfDB and Japan International Cooperation Agency sign $300-million loan

The Japan International Cooperation Agency (JICA) has signed a JPY 34.41 billion (about $300 million) loan agreement with the African Development Bank under the Enhanced Private Sector Assistance (EPSA) initiative which is a component of Japan’s Official Development Assistance (ODA) to Africa.

S&P Global Ratings has affirmed its long-and short-term counterparty credit ratings on Nigeria-based Diamond Bank at ‘B-/B’. The outlook on the long-term global scale rating is negative.

S&P Global Ratings has affirmed its ‘BB+/B’ long- and short-term counterparty credit ratings on South Africa-based Nedbank. The affirmation reflects S&P’s expectation that Nedbank will maintain a risk-adjusted capital (RAC) ratio for the bank at about 5.75-5.80 per cent over the next 18 to 24 months, owing to better-than-peers’ average asset quality, with the cost of risk at 0.7 to 0.8 per cent.

Moody’s Investors Service has raised Mercantile Bank’s long- and short-term national scale ratings (NSRs) to Baa1.za/P-2.za from Baa3. za/P-3.za respectively and Bidvest Bank’s long-term NSR to Aa2.za from A1.za. At the same time, Moody’s affirmed Bidvest’s global scale ratings and changed the outlook to negative from stable.

SOVEREIGNS Moody’s Investors Service has downgraded the long-term issuer and senior unsecured debt ratings of the Government of Gabon to B3 from B1 and maintained the negative outlook. The negative outlook reflects uncertainties regarding the government’s strategy to refinance maturing debt and fund its deficit despite support from official creditors, which remains conditional.

Moody’s Investors Service has assigned a provisional senior unsecured (P)B1 rating to the proposed Government of Nigeria’s Diaspora Bond.

The signing ceremony was held at the AfDB headquarters in Abidjan, Côte d’Ivoire in the presence of Japan’s Ambassador to Côte d’Ivoire (CREDIT: MAOYUNPING/SHUTTERSTOCK).

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in the

news

A QUICK WORD

An investment is not just about profit and returns. It is also about sustainability.

What I want to see is Africans investing in Africa. We appreciate and welcome partnerships, but there is a generation of African businessmen and women, who have the capability and ambition to lead and transform Africa’s future. Let your money work in Africa.

— Tony Elumelu, CON, Chairman of Heirs Holdings and the Tony Elumelu Foundation For these stories and more, visit www.bankerafrica.com

IMF Executive Board completes fourth review of Senegal’s economic performance

The Executive Board of the International Monetary Fund (IMF) completed the fourth review of Senegal’s economic performance under a programme supported by the Policy Support Instrument (PSI). The aim of the programme is to implement economic policies and structural reforms needed to sustain strong growth and ongoing fiscal consolidation to meet the regional fiscal criteria.

Following the Executive Board discussion, Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement, “The Policy Support Instrument with Senegal has supported the authorities’ reform The IMF noted that the PSI supported authorities’ reform efforts (CREDIT: efforts to increase growth, while KISOV BORIS/SHUTTERSTOCK). maintaining economic stability.

Under the Plan Sénégal Emergent (PSE), growth has increased steadily to 6.7 per cent in 2016, while inflation has remained low. The fiscal deficit fell to 4.2 per cent of GDP in 2016 and Senegal is projected to meet the West African and Monetary Union convergence criteria of three per cent of GDP in 2018, one year earlier than mandated. Continued implementation of sound policies reforms is important to sustain high growth and meet Senegal’s development objectives.”

AFDB APPROVES SEFA CONTRIBUTION FOR GREEN MINI-GRID MARKET DEVELOPMENT PROGRAMME

The African Development Bank’s Board of Directors approved a $3-million grant of the Bank’s Sustainable Energy Fund for Africa (SEFA) for Phase two of the Green Mini-Grid Market Development Programme (GMG MDP).

Implemented by the Bank-hosted SEforALL Africa Hub, the GMG MDP’s objective is to support the scale-up of investments in commercially viable GMG projects through a broad range of interventions to improve the enabling environment. The project seeks to remove or reduce market barriers at regional scale and strengthen the ecosystem for the emergence of a thriving GMG sector in Sub-Saharan Africa—contributing significantly to the objectives of SEforALL and the New Deal on Energy for Africa.

Souk At-tanmia builds capacity of 450 young entrepreneurs, public and civil actors in Tunisia

Souk At-tanmia’s partnership launched a capacity-building programme for public and civil actors operating in the field of entrepreneurship in Tunisia.

This training cycle aims to foster synergies between public institutions and civil society organisations in order to improve the quality of the services offered to Tunisian entrepreneurs.

“This training is in line with the orientations of the African Development Bank’s Jobs For Youth in Africa Strategy 2016-2025 (JfYA), which aims to create 25 million jobs and positively impact 50 million youth over the next decade across the continent,” said Mohamed El Azizi, Director General of the AfDB’s office for North Africa. “Promoting entrepreneurship and creating productive jobs for young people will help improve their living conditions and stimulate the growth of Tunisia and its economic transformation.”

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AfDB to support Mozambique SMEs in the construction sector along Nacala Corridor

The African Development Bank’s Board of Directors has approved a $1-million African Private Sector Assistance Fund (FAPA) grant to the Government of Mozambique to finance the Nacala Corridor Business Linkages Technical Assistance Project.

The project is in line with the Bank’s effort to promote inclusive private sector development and The AfDB has approved a SME linkages with large investments. fund to assist construction It also aims to promote corridor SMEs in Mozambique (CREDIT: economic development through the POTOWIZARD). integration of economic activities within infrastructure development along the Nacala corridor.

The Mozambique Nacala Corridor Business Linkages Technical Assistance Project is aimed at improving the efficiency and competitiveness of SMEs in the construction sector situated in the Nacala Corridor to enable them take advantage of business opportunities provided by the Nacala rail and port projects and other large construction investments. The project is designed to complement the Bank’s private sector Nacala rail and port project in order to support inclusive and sustainable economic growth along the Nacala corridor.

IMF CONCLUDES MADAGASCAR 2017 ARTICLE IV CONSULTATION

T h e E xe c u t i v e B o a r d o f t h e I n t e r n a t i o n a l Monetary Fund (IMF) completed the first review of Madagascar’s economic performance under a programme supported by an Extended Credit Facility (ECF) arrangement. It also approved the authorities’ request to augment access under the programme for SDR 30.55 million (about $42.39 million) or 12.5 per cent of the country’s quota.

After the Board meeting, David Lipton, First Deputy Managing Director and Acting Chair, stated, “Madagascar’s performance under its economic programme supported by the Extended Credit Facility (ECF) has been strong. The authorities’ strategy to promote more inclusive and sustained economic growth by scaling up investment in infrastructure and human capital, raising social spending, and advancing structural reforms—as outlined in the National Development Plan—is appropriate. The programme’s success hinges on building investment management capacity while safeguarding macroeconomic stability and debt sustainability.”

9

Resolution Insurance realises expansion plans with SSP Pure Insurance

Resolution Insurance has chosen insurance technology specialist SSP to provide a new IT system for its expansion plans. Following private equity investment, the insurer has diversified into the general insurance market and expanded from its Kenyan base into Tanzania. The deal will see SSP Pure Insurance deployed as a single flexible, end-to-end core insurance solution across Resolution Insurance’s operations in Kenya and Tanzania, with local account management support from the Kenyan office.

Steve Lathrope, Group Managing Director at SSP, says, “Kenya is an important market for general insurance that has grown by 20 per cent compound over the last year. I am delighted to be working with Resolution Insurance, a company that shares SSP’s commitment to delivering innovative and quality solutions to this market, with the roll out Resolution Insurance was established in 2002 and manages now extended to include the medical needs of over 60,000 members within East Africa its operations in Tanzania.” (CREDIT: ESB PROFESSIONAL).

Stakeholders call for creation of Abidjan-Lagos Highway Corridor economic zones

To boost trade, investments, growth and overall development, stakeholders have called for the creation of exclusive economic zones/hubs along the Abidjan–Lagos Highway Corridor. The Corridor supports about 75 per cent of the trade activities of the sub-region. This was one of the outcomes of a regional workshop held in Abidjan on 20-21 June 2017 to validate the outcomes of a study commissioned by the African Development Bank on the Abidjan– Lagos Highway Corridor.

The Abidjan–Lagos H i g h w a y C o r r i d o r, covering 1,028 kilometres, spans across five countries—Côte d’Ivoire, Ghana, Togo, Benin and Nigeria—and traverses the economic capitals of these five coastal countries, starting from Abidjan and ending in Lagos, while equally straddling The Abidjan–Lagos Highway Corridor is a major flagship project under the Programme for Infrastructure Development in Africa eight border crossings.

(CREDIT: STOCKPHOTO MANIA/SHUTTERSTOCK).

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news

spotlight [MOROCCO]

Morocco hits record number of 10.4 million tourists in 2016

The North African country witnessed a significant increase in number of tourists visiting the country, with the total number of tourists who visited Morocco in March was 762,562, an increase of 3.7 per cent compared to the same period last year, according to the Ministry of Tourism, Air Transport, Handicraft and Social Economy. This increase was underpinned by the surge of the GCC tourists visiting Morocco during the same period.

Khadija El Idrissi, Director of Communication and Public Relations at Mazagan Beach and Golf Resort said, “Morocco is fast witnessing an increase in travellers from the Gulf. The increased number of air links between the two regions, the cost-effective prices offered by the country and the high disposal incomes of the people have encouraged more GCC tourists to visit this part of the world.”

The Jamaa el-Fna square and market place in Marrakesh is a popular destination with tourists (CREDIT: DANM12/SHUTTERSTOCK).

IFC and Proparco invest in Moroccan green bond to boost renewable energy IFC, a member of the World Bank Group, and Proparco, a subsidiary of Agence Française de Développement (AFD) devoted to private sector financing, are investing EUR 100 million and EUR 35 million, respectively, in the first green bond issuance by Banque Centrale Populaire (BCP), to promote sustainable, environment friendly projects Wind turbines and solar panels in Marrakesh in the country.

This is the first green (CREDIT: SIBUET BENJAMIN/SHUTTERSTOCK). bond issuance in foreign currency in Morocco, as well as IFC and Proparco’s first green bond investment in the region. The 10-year maturity bond will be used to provide long-term funding for BCP to refinance investments in selected renewable energy projects in the Kingdom.

IMF staff complete second review mission of the precautionary and liquidity line

An International Monetary Fund staff team visited Morocco from 29 June to 10 July 2017 to conduct discussions with the Moroccan authorities on the second review under the Precautionary and Liquidity Line (PLL) arrangement. The IMF Executive Board approved the PLL arrangement for Morocco in the amount of SDR 2.504 billion (about $3.42 billion) in July 2016. The authorities have not drawn on the PLL and intend to keep the arrangement as precautionary.

At the conclusion of the mission, Nicolas Blancher, who led the staff visit, made the following statement, “Morocco’s macroeconomic policies and performance remained sound, despite volatility in agricultural output, weak growth in trading partners, and elevated external risks. The Moroccan authorities remain committed to important fiscal, financial and structural reforms, which should strengthen the economy’s resilience to external shocks and support higher, more inclusive growth.

EuroMena announces acquisition of minority stake in Morocco’s Retail Holding SA

EuroMena has announced the acquisition of a minority stake of Retail Holding SA, a Moroccan Retailer.

Proceeds of the investment will mainly be used to fund the expansion of the Group.

Gilles de Clerck, Executive Partner of The EuroMena Funds, said, “EuroMena is proud to join the retail leader at such an important time for the group, in which it is rapidly expanding in Morocco and regionally, led by an experienced management team.”

Zouhaïr Bennani, Chief Executive Officer of Best Financière, said, “We are proud to welcome The EuroMena Funds, a leading private equity firm invested in the MEA (Middle East and Africa) region, as a shareholder of the group and in supporting the development of the company, especially its Label’Vie and Compagnie de distribution de Côte d’Ivoire subsidiaries, both leaders in their respective markets.”

This transaction is the fourth investment of EuroMena III following the investments in Elephant (FMCG, Nigeria), in Indigo Company (apparel retail franchising, Tunisia, Morocco and Algeria), and in Credit Libanais (banking, Lebanon).

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spotlight [RWANDA]

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RWANDA

by numbers POPULATION

GDP GROWTH 10%

11.53

8% 6%

million

4%

10m

100m

Source: International Monetary Fund; World Economic Outlook Database (April 2017) – as of end-2016

MOST PROBLEMATIC FACTORS FOR DOING BUSINESS Access to financing Inadequately educated workforce Tax rates Insufficient capacity to innovate Tax regulations Inadequate supply of infrastructure Poor work ethic in national labour force Foreign currency regulations Inflation Inefficient government bureaucracy Policy instability Corruption Government instability Restrictive labour regulations Poor public health Crime and theft

2% 0%

6.1% 6.8% Projected in 2017

21.2 17.8 14.8 9.8 9.3 7.8 5.4 3.9 3.5 2.0 1.1 1.0 0.9 0.7 0.7 0.2

Projected in 2018

Source: IMF World Economic Outlook Database (April 2017)

EASE OF PAYING TAXES

Ranked 59 out of 189

0

6

12

18

Source: Global Competitiveness Report 2016-2017/World Economic Forum, Executive Opinion Survey 2016

24

% 33 total tax rate

CPI UP 7.3% Y-o-Y Urban CPI

Rural CPI

Rwanda CPI

130

Source: PwC Paying Taxes 2017 analysis

125

COMPETITIVENESS

120

Ranked 52 out of 138 for macroeconomic competitive environment

115 110 105

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-16 Feb-16 Mar-16 Apr-16

Source: National Institute of Statistics of Rwanda/Consumer Price Index – April 2017

Source: Global Competitiveness Report 2016-2017/ World Economic Forum

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happenings

Etisalat to exit Nigeria The UAE telecoms provider has surrendered its stake in the business and will leave the West African country The telecoms operator is based in the UAE and entered the Nigerian market in 2008 (CREDIT: BLACKZHEEP/SHUTTERSTOCK).

I

n an announcement this month, UAE-based telecoms group Etisalat announced that it has terminated its management agreement with its Nigerian arm and plans to phase out the Etisalat brand from Nigeria.

In an announcement to shareholders on 10 July 2017, Etisalat Group stated that it has terminated all existing management and technical support related agreements with Emerging Markets Telecommunication Services Limited (EMTS) with effect from 30 June 2017. Furthermore, the announcement also makes notes of the termination of all agreements governing the use of the Etisalat brand had been deferred until 21 July 2017.

Etisalat has surrendered the 45 per cent stake it in the business to a trustee following a regulatory intervention to save the local company from collapse due to debt after talks with lenders failed to renegotiate a $1.2 billion loan.

In line with the directive to stop using the Etisalat brand, it was also announced earlier this month that it

would formally adopt the new name 9mobile. The CEO of 9mobile, Boye Olusanya, was reported by Reuters to have stated that the company had retained its workforce and that the withdrawal of Etisalat had not led to a loss of business opportunities, but declined to state how much the re-branding process had cost.

The Nigerian arm of Etisalat has become a victim of the dollar shortages which have plagued the West African nation in recent months (as last reported in Banker Africa #45 page 18). Lower oil prices and economic recession has left the country struggling to make repayments to lenders and suppliers.

Although the situation has been improving, with Fitch stating that the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, which is more commonly known as the ‘Investors’ and Exports’ FX Window’, has appeared to boost the foreign currency supply and flow of foreign currency liquidity in the Nigeria, problems are still present.

In the case of Etisalat Nigeria, a $1.2 billion loan taken out in 2013 from 13 local lenders to finance expansion and existing loans, has meant the company has struggled to repay.

In 2008 when the company launched its Nigerian business the country was widely considered to be one of the most strategically important growth markets for telecoms providers due to maintaining the largest population in the region with a very low mobile penetration rate.

In an interview published

by Gulf News, Hatem Dowidar, Chief Executive Officer, Etisalat International commented that the company had become the fastest growing telecommunications network in the country and had reported positive earnings before interest, tax depreciation and amortisation in less than four years of operations. However, fundamental macroeconomic conditions combined with the heavy investment required to finance telecommunications growth has been the root cause behind the company’s recent problems.

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12/7/1714:14 14:30 23/07/2017

country

opinion

14

Artificial intelligence applications to bolster risk culture at panAfrican banks Advanced learning techniques and artificial intelligence can help improve decision making ability, says Ari Lehavi, Executive Director, Moody’s Analytics

P

an-African banks face a unique challenge in achieving a common culture of risk awareness and behaviour.

They operate across such diverse markets that they understandably struggle to achieve a consistent standard of risk vigilance across their vast employee populations. Deploying a comprehensive training and certification programme represents an important investment in addressing this challenge. But after training is complete, how can these institutions ensure that the skills learned are consistently applied over time?

Over the past two years, Moody’s Analytics has partnered with a number of global financial institutions to develop advanced capabilities to systematically uncover and remediate performance gaps across their workforce. The challenge has been to ensure that the decision-making skills of their employees remain robust throughout their careers. We have found that a new approach combining

Ari Lehavi

technologies such as artificial intelligence (AI) with advanced learning techniques offers the best solution to this endemic problem.

To understand the AI methodology and to appreciate what makes it compelling, it is instructive to consider the challenge of building and maintaining a robust risk culture, as well as the deficiencies of traditional methods in embedding it across the organisation.

The path to changing an organisation’s culture is multi-faceted, but at the heart is a systematic programme of defining the types of behaviours expected, establishing a range of mechanisms to promote such behaviours, and reinforcing them over time to make sure the impact is sustained. Banks that set out on such a transformation will need to redesign fundamental aspects of their business, such as governance structures, incentives, policies, controls, internal communications, and training. The desired outcome will be in the form of improved employee judgement and decisions.

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But these are inherently difficult to measure and track. In order to evaluate the impact of a cultural change on improved judgement and to determine the return on investment (ROI) of training to enhance performance, a credible and objective assessment mechanism is essential.

To be effective, a solution has to be laser-focused on the unique needs of each individual. As employees move through their careers, capabilities that require reinforcement vary over time and from one person to the next.

Given this dynamic, the ideal way to determine the training needs of each individual is to assign them a coach during their employment. However, this approach is not practical for a large workforce. On the other end of the spectrum, companies can offer a periodic ‘one-size-fits-all’ training refresher to all employees. However, this approach can be time-consuming, expensive to develop and run, and often unpalatable for experienced professionals who already possess a strong base of skills and a history of job performance.

Given these concerns, banks employ alternative solutions, which still do not produce the desired outcome of systematically measuring, tracking, and remediating analysis and decision-making skills. To address ongoing training needs, banks often offer their employees access to selfguided learning and one-off seminars.

However, this approach assumes that employees are aware of their areas of weakness and are willing to invest the time to resolve them. Meanwhile, various diagnostic tools such as knowledge checks or case studies can help identify knowledge gaps, but they lack the sophistication to delve and probe sufficiently to detect flaws in logic and reasoning when making decisions. Consequently, banks are still short on options to evaluate the

impact of their risk culture initiatives on employee judgement and to ensure that any improvements are retained over time.

The use of AI principles to measure and improve learning outcomes is not new. However, designing the AI framework in such a way that it has the capacity to be employed in scalable ways over very large populations, efficiently, effectively, and consistently is a leap forward. For some, AI might sound complex, but using AI principles can in fact be straightforward to understand and apply. The difficulty lies in the upfront design of the logic that guides the AI algorithms. This requires a thorough understanding of how decisions are made at a bank and their link to risk culture. The decisions must be deconstructed into their underlying knowledge and judgement drivers so that the questions that guide the performance assessment can be carefully written to trace back to the drivers of those factors. The questions need to branch into different streams in response to specific inputs from the employee and continue to branch until the gaps in the individual’s knowledge and behaviour are fully captured. Armed with these insights, organisations can provide carefully targeted training, delivered on-demand and at the point when the specific area of learning is most needed.

Let’s take the real-life example of a loan officer making a commercial lending decision. If we assign a personal coach to this lender to observe her while she deliberates on the creditworthiness of a borrower, the coach could best determine the soundness of her judgement. By probing exactly how and why the lender is reaching her conclusions, the coach would understand the source of any flaws in her line of reasoning.

Following such an in-depth assessment, the coach would construct a bespoke

15

learning plan to help the lending officer improve her performance. But even if this high-touch approach were possible, the challenge to consistently and objectively measure and track the performance of an entire loan officer population would remain. Smart algorithms constructed with inputresponsive probing and branching logic that a personal coach would apply for one lender can now scale to quantify and improve decision-making skills for any number of lenders at a lower cost to the institution.

For an organisation looking to build and sustain a robust risk culture, the ability to measure, track, and improve judgement skills using scalable technology represents a significant breakthrough. The banks that are already deploying these solutions are finding that the diagnostic accuracy correlates very highly to that arising from similar analyses performed manually.

The demonstrated effectiveness of the application suggests that these solutions will become the new paradigm for learning and performance improvement. For panAfrican banks in particular, this approach might be exactly what they have been seeking to strengthen their risk culture initiatives. AI-driven diagnostic and learning solutions can help such banks ensure that their staff applies practices consistently and accurately on an ongoing basis and across the diverse markets in which they operate.

Ari Lehavi is an Executive Director of Moody’s Analytics, overseeing the Financial Services Training & Certification division, which offers learning solutions combining AI and advanced learning techniques.

www.bankerafrica.com

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markets

16

Opportunities knock Banker Africa spoke with Prejelin Naggan, Head of Primary Markets, JSE, on what the future holds for the South Africanbased exchange South Africa was ranked first worldwide for financing through local equity markets (CREDIT: VINTAGE TONE/SHUTTERSTOCK).

I

n The Global Competitiveness Report 2016-2017 compiled by the World Economic Forum (WEF), the South African economy ranked first amongst 138 countries reviewed for financing through local equity markets.

Prejelin Naggan, Head of Primary Markets, Johannesburg Stock Exchange (JSE) explained that this a reflection of the large and deep pools of capital available for deployment in the economy.

From an institutional investor perspective significant opportunities are present within the economy, with non-bank assets held sitting at around ZAR 9 trillion, nearly double that of bank assets at ZAR 4.6 trillion.

Naggan further stressed that from a governance standpoint the JSE has also performed well. With South Africa also rated third best in the world for regulation of security exchanges, according to the WEF.

“What this really means is that the regulation of our exchange is top three in the world—the JSE has fluctuated between first and third over the last eight years, so we’ve had consistent performance,” said Naggan. “We’ve incorporated the King code of corporate governance principles directly into our listing requirements with South Africa also ranking as number one for protection of minority interests, so certainly from a JSE perspective and a

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South African perspective I think we’ve got strong credentials in that regard, in so far as how are corporates are run.”

THE DOWNGRADE

Perhaps the one of the biggest news stories in the South African economy in this year so far has been the country’s credit rating cut to junk status by international credit rating agencies. A rating cut to junk affects all forms of capital in the economy.

The costs associated with traditional forms of capital raising such as via banks, debt, development financing or institutional capital will typical rise off the back of the rating change.

“As banks continue in the downgrade scenario it’s obviously going to be more difficult for governments and corporates to raise, particularly debt capital, by a bank loan, so debt capital markets may still be popular in the mid- to long-term,” said Naggan. “Looking more broadly from a foreign investor perspective some pension funds locally have in their mandate that they have to invest into investment grade instruments, so to the extent that the downgrade which we’ve had has taken some South African investment outside of the investment grade status, it will make investment into South African instruments obviously more difficult for these investors… it’s just going to be very difficult for companies to raise capital to fund their growth activities.”

The JSE has, despite aforementioned challenges, seen a number of new companies come to the exchange from various sectors this year. Naggan stated that the pipeline for new listings is positive. “On a go-forward basis we’ve got one more coming next week, and the pipeline of new listings in terms of what advisors have informed us looks decent as well… given the climate that we’re in, it is a solid pipeline to come.”

In terms of where this pipeline is coming from, of the initial public offerings (IPOs) listed so far, two have been in the farming, fishing and plantation industries from two of South Africa’s large food companies.

Brian Joffe, founder of Bidvest, launched Long4Life, an investment company focused on opportunities in the lifestyle industry, raising ZAR 2 billion on the JSE. Meanwhile there have also been two Special Purpose

17

Acquisition Companies (SPACs) listed, amongst others.

TO THE FUTURE

Naggan highlighted two developments that the JSE is working on, the first of which is the exchange’s listed project bonds framework. Project bonds have been trumpeted as an alternative source of financing infrastructure in the face of high demand for investment and limited capital available from governments and financial institutions.

Project bonds allow for an alternative debt funding rout in order to source financing for infrastructure projects.

“In South Africa, in the continent and globally there’s this massive infrastructure spend that is required, and in the South African context the number that is bandied about is ZAR 870 billion over the next three years and trillions over the next 15 years.

Given that you’ve got this strain on traditional sources for infrastructure development such as bank funding or development financial institutions funding which is housed on the balance sheets of those banks or on the states of enterprise that are undertaking the infrastructure development, we thought about providing a means to, provide a solution for this funding gap, and the obvious solution is that there’s this massive amount of institutional money fund money out there,” said Naggan.

Pension funds and institutional investors are normally looking for long-term holdings in fixed incomes, whilst infrastructure development is typically characterised as a longterm project with the upkeep and running of the infrastructure itself following initial completion. Naggan argues that this is a suitable match and can help alleviate the funding challenges that infrastructure is facing in South Africa. The JSE held talks with the World Bank and the National Treasury of South Africa, cont. overleaf

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cont. from page 17

along with holding a workgroup of stakeholders, including participation from the buy-side such as the involvement of the Association for Savings and Investment South Africa (ASISA), which supports local institutional investors, and local banks. The JSE listing requirements are likely to be released later this year in Q4, and will aim to provide a listed format for investment by institutional investors.

Secondly, the exchange has been working on its involvement in the green bonds space. Green bonds aim to fund projects that have a positive environmental or climate effect and fulfil investor demand for climate-friendly investment products. “From a JSE perspective we understand that there is a lot of investor demand for products which fund climate change initiatives and we also been working on listing requirements to facilitate the listing of green bonds in the South African context,” said Naggan.

Finally, Naggan pointed to the work that the JSE is doing for the development of SMEs. From a compliance perspective it is often difficult for SMEs to list itself on an exchange, which is part of the reason as to why the JSE launched its AltX board in 2003, which is principally designed to enable SMEs to come to market and raise capital before migrating to the main board.

“We continue to work with the stakeholders to ensure that smaller companies are able to utilise AltX in a sensible manner, such as having a full understanding the rules, which are obviously from a regulatory perspective a lot lighter than the main board rules, and also to see if we can improve from a technology perspective and actually make it easier for people to actually come to list,” said Naggan.

Prejelin Naggan

Prejelin Naggan is Head of Primary Markets in the Capital Markets division of the Johannesburg Stock Exchange (JSE). His role entails leading teams that drive new listings by local and international issuers across all the JSE markets.

This includes focusing in particular on new equity and debt listings and related products such as ETFs (exchange traded funds), warrants and hybrid instruments.

Before joining the JSE, Prejelin was with J.P. Morgan Chase Bank for almost eight years where he worked initially as the bank’s M&A and ECM lawyer, then as a client coverage banker within the Investment Banking division advising client in different industries on M&A and ECM transactions. Before leaving J.P. Morgan, Prejelin was the Sub-Saharan Investment Banking Business Manager supporting the development and implementation of the firm’s Investment Banking strategy.

www.bankerafrica.com

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focus

A return to form Having experienced its lowest growth in decades in 2016, Ghana looks set to get back on track

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2

016 was a tough year for the Ghanaian economy, recording growth of 3.5 per cent, the country’s lowest recorded figure in decades. However, with the Government addressing some of its deficit concerns and commodities set to pick up, 2017 and the future is set to look significantly brighter.

Ghana experienced a significant budgetary deficit in 2016, which widened to an estimated 8.9 per cent of GDP in the run up to the December elections—in comparison the Government and IMF target for 2016 was 5.25 per cent. Ghana at present has an Extended Credit Facility (ECF) supported by the IMF, which was arranged and approved in 2015 to the tune of SDR 664.2 million (about $900 million). Earlier this year, a staff visit led by Joël Toujas-Bernaté, visited Accra to take stock of the 2016 economic developments and the outlook for 2017.

In a statement following the end of the visit, Toujas-Bernaté said, “In 2016, the overall fiscal deficit (on a cash basis) deteriorated to an estimated nine per cent of GDP, instead of declining to 5.25 per cent of GDP as envisaged under the IMF-supported programme. The large deviation was mainly due to poor oil and nonoil revenue performance and large expenditure overruns. As a result, the government debt-to GDP ratio increased further to close to 74 per cent of GDP at end-2016.”

Fitch Ratings noted in a ratings release earlier this year that the cash deficit included up to $1.3 billion (or three per cent of GDP) in offbudget and unapproved spending.

Furthermore, the ratings agency

noted that on a commitment basis, accounting for an additional $650 million in unpaid commitments, the country’s deficit widened to as much as 10.5 per cent of GDP. The agency goes on to forecast that the 2017 budget deficit will narrow to 7.5 per cent of GDP on a cash basis, and further to 5.5 per cent in 2018. In comparison, the Government’s 2017 deficit forecast of 6.5 per cent of GDP is based on an increase in tax revenues that will likely be difficult to realise, added Fitch, as the current budget contains significant tax cuts aimed at incentivising the business environment.

Furthermore, the agency notes that historically Ghana has underperformed in its budgeted revenue projections.

However, the ECF with the IMF was also noted as a key supporter for the country’s sovereign ratings. As such, some positivity can be found in Government support to continue the programme. “The new government has expressed its intent to continue with the current programme with the IMF. Officials outlined bold policies to restore fiscal discipline and debt sustainability and also to support growth and private sector development,” said Toujas-Bernaté.

“The large fiscal slippages observed last year will, indeed, require strong efforts of fiscal consolidation to support debt sustainability. The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.”

In addition, the all-important primary sector was dragged down last year by lower prices in key commodities, such as cocoa and oil.

As such, complementing Government

21

Ghana’s credit strengths include the strong growth outlook for the country’s diversified economy compared to the regional average over the next few years, supported by new oil and gas field developments coming on stream.

– Elisa Parisi-Capone, VP-Senior Analyst, Moody’s –

cont. on page 23

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22

GHANA

by the numbers POPULATION

GDP GROWTH 10%

27.57

8% 6%

million

4%

10m

100m

Source: International Monetary Fund; World Economic Outlook Database (April 2017) – as of end-2016

LONG-TERM TRENDS I 3-year averages 2013-15

2016-18

2019-21

Population (million)

26.2

28.3

30.5

GDP (USD bn)

39.5

4 5.6

59.6

GDP growth (%)

5.0

5.2

5.4

Fiscal Balance (% of GDP)

-9.4

-7.0

-4.9

Public Debt (% of GDP):

66.4

71.5

64.9

Inflation (%):

13.6

13.3

8.6

Current Account (% of GDP):

-10.1

-6.1

-4.5

External Debt (% of GDP):

47.8

51.6

47.4

0%

7.1% 8% Projected in 2017

Projected in 2018

Source: Africa Economic Outlook 2017

EASE OF PAYING TAXES

Ranked 122 out of 189

% 32.7 total tax rate

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa

ECONOMIC STRUCTURE GDP by Sector I share in % 100

2%

GDP by Expenditure I share in %

2007-09 2010-12 2013-15

120 Agriculture

80

2007-09 2010-12 2013-15 Net Exports

Source: PwC Paying Taxes 2017 analysis

90 Investments

60

Manufacturing

60

40

Other Industry

30

Government Consumption

20

Services

0

Private Consumption

0

-30

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa

COMPETITIVENESS

Ranked 132 out of 138 for macroeconomic competitive environment Source: Global Competitiveness Report 2016-2017/ World Economic Forum

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cont. from page 21

support for fiscal reform and attention on the budget deficit is the likely recovery in oil prices and commodities.

FocusEconomics noted in its Consensus Forecast Sub-Saharan Africa July 2017 that growth will be supported this year due to greater oil output as Jubilee field repairs are completed and TEN (Tweneboa-Enyenra-Ntomme) field, the country’s second major oil field, ramps up production.

DECLINING INFLATION

Ghanaian economic growth is also supported by declining inflation rates.

“Bank of Ghana’s (BOG) monetary policy has been instrumental in mitigating inflationary pressures in 2016. Adequately tight monetary policy will again be important for containing possible further pressures in 2017,” said Toujas-Bernaté.

Consumer prices increased 0.7 per cent in May, significantly down from April’s 1.6 per cent, driven primarily by higher prices for education, clothing and footwear, food and non-alcoholic beverages noted FocusEconomics.

Meanwhile, inflation fell to 12.6 per cent in May, down from 13 per cent in April. This marks the lowest level of inflation for the West African nation

Moody’s: Ghana’s credit profile balances strong economic growth outlook against high debt and weaker fiscal position In a recent report, Moody’s Investors Service said that Ghana’s B3 credit rating and stable outlook are a reflection of the country’s strong economic growth outlook and reduction in external imbalances, set against challenges which include the country’s significant fiscal overrun in 2016, high government debt and very low debt affordability.

Elisa Parisi-Capone, a Moody’s Vice President—Senior Analyst and co-author of the report, said, “Ghana’s credit strengths include the strong growth outlook for the country’s diversified economy compared to the regional average over the next few years, supported by new oil and gas field developments coming on stream.”

“Its challenges include a debt ratio exceeding 70 per cent of GDP and very low debt affordability metrics over the next two years,” she added.

The ratings agency forecasts that Ghana’s real GDP growth will accelerate to 6.1 per cent in 2017 and 7.5 per cent in 2018. This growth will likely stem mainly from increased oil and natural gas production rather than the non-oil sector, which is projected to remain relatively more subdued at between 4.5 and five per cent over the forecast horizon, added Moody’s, held back by fiscal consolidation pressures and still subdued real credit growth.

Moody’s also noted that Ghana’s susceptibility to event risk is “Moderate (+)”, driven primarily by government liquidity risk linked to large gross borrowing requirements amid tight domestic and external funding conditions.

For the country’s banking system, the agency added that it remains liquid and well-capitalised, with a capital adequacy ratio of 17.4 per cent as of April 2017. Key risks for the sector include the high non-performing loan ratio and significant concentration risk in the energy sector.

Moody’s added that downward credit pressures on Ghana’s sovereign rating would arise from emerging funding constraints in the domestic debt market.

In addition, an adverse ruling in September 2017 on its dispute with Côte d’Ivoire over the ownership of the TEN oil fields would also be credit negative, whilst upward pressure on the sovereign rating would stem from a significant reduction in fiscal and external imbalances supported by the structural reform agenda agreed with the IMF.

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

BEST BANKS

INFLATION I CONSUMER PRICE INDEX 6

22

4

19

2

16

Bank

%

%

1

Barclays Bank Ghana

0

13

2

Ghana Commercial Bank Ghana

3

Standard chartered Ghana

4

UBA Bank Ghana

5

Zenith Bank Ghana

Rank

-2

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

May-15

Nov-15

May-16

Nov-16

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

Source: Ghana Statistical Service (GSS) and FocusEconomics calculations.

May-17

10

cont. overleaf

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cont. from page 23

since December 2013, and moves the country closer to the Central Bank’s target of between six and 10 per cent. Contributing panellists to the FocusEconomics Consensus Forecast expect inflation to overall aver 12.5 per cent in 2017, and 10.1 per cent in 2018.

This, combined with a generally improving macroeconomic environment, has allowed the Bank of Ghana to continue to cut the central bank interest rate to 22.5 per cent as time of writing, down from its 26 per cent peak in March 2016.

GROWTH EXPECTATIONS

These factors have overall led to a very favourable outlook for Ghana’s growth prospects going forward.

The African Economic Outlook 2017 projects recovery in growth to 7.1 per cent in 2017 and eight per cent in 2018. Fitch Ratings expects growth to improve to six per cent in 2017 whilst FocusEconomics panellist group expects growth of 5.8 per cent. All of these examples point to much improved growth over 2016’s 3.5 per cent and marks a turnaround for a country which has experienced contraction in GDP growth for five consecutive years.

LONG-TERM TRENDS three-year averages Population (million) GDP (USD bn) GDP per capita (USD)

2013-15

2016-18

2019-21

26.2

28.3

30.5

39.5

4 5.6

59.6

1,510

1,612

1,950

GDP growth (%)

5.0

5.2

5.4

Fiscal Balance (% of GDP)

-9.4

-7.0

-4.9

Public Debt (% of GDP):

66.4

71.5

64.9

Inflation (%):

13.6

13.3

8.6

Current Account (% of GDP):

-10.1

-6.1

-4.5

External Debt (% of GDP):

47.8

51.6

47.4

Source: FocusEconomics

GROSS DOMESTIC PRODUCT I VARIATION IN % 20

10 % 0

-10 Q1 2013

Q1 2014

Q1 2015

Q1 2016

Q1 2017

Note: Year-on-year changes of GDP in %.

Source: Ghana Statistical Service (GSS) and FocusEconomics Consensus

MACROECONOMIC INDICATORS 2015

2016(e)

2017(p)

2018(p)

Real GDP growth

3.9

3.3

7.1

8.0

Real GDP per capita growth

1.5

1.0

4.8

5.8

CPI inflation

17.2

17.0

10.5

7.2

Budget balance % GDP

-4.7

-8.7

-6.5

-5.2

Current account % GDP

-7.8

-3.9

-4.6

-5.2

Source: Data from domestic authorities;estimates (e) and projections (p) based on author’s calculations.

The Northern Rural Growth Programme Accelerated growth in Ghana has been a boon the quality of life of many of the country’s citizens, but the disparities between the Northern and Southern broad regions, in terms of economic development, has also been crystallised.

In order to tackle poverty in the Northern Ghana region, the country has relied heavily on inclusive agricultural growth in rural areas to help implement more equitable and sustainable poverty reduction and food security in the country.

The Northern Rural Growth Programme (NRGP), jointly funded by the African Development Bank (AfDB), the International Fund for Agricultural Development (IFAD) and the Government of Ghana, has aimed to facilitate this project.

The AfDB reports that the programme has been funded by the organisation to the tune of $61.29 million, whilst the IFAD has funded $22.73 million and the Government of Ghana $10.37 million.

The programme is designed to work with poor rural people to help develop income-generating agricultural activities and supplement subsistence farming.

IFAD state that subsistence farming currently dominates the Northern Ghana regions but that the goal of the NRGP is to help achieve food security and sustainable livelihoods for those that have previously been dependent on marginal lands with particular emphasis on rural women and other vulnerable groups.

www.bankerafrica.com

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loans

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Keeping score TransUnion Kenya CEO Billy Owino explains the reasoning behind the launch of the company’s new Mobile Loan Scorecard

C

an you give me an overview of TransUnion’s new Mobile Loan Scorecard?

Billy Owino, CEO, TransUnion Kenya

The TransUnion Mobile Loans Scorecard, which we launched recently, is a solution that was really born out of quite a growing need that we’ve seen, especially in a lot of the emerging markets, and specifically Kenya and the region. There’s been an explosion in growth of mobile loans which have been driven by the growth of mobile money— which itself is really doing quite well in a lot of countries in this region. In places like Kenya you have almost 45 per cent of our GDP transacted over mobile money which has led to subsequent development.

A lot of the consumers could now have a form of a bank account where they could save and transact with money on their mobile without having banks which has led to what is now known as mobile loans. Apart from just transacting or saving on your phone, you could now borrow. [Safaricom and banks are now] offering this kind of solution where you can borrow on the phone, payable either immediately or over 30 days, with a lot of fintechs coming into this space—and the volumes are really growing. If you look at a lot of the mobile loan lenders from a bank perspective, when you look at the numbers for example for equity, last year they were really able to grow their loan portfolio quite immensely, in terms of how much they are lending on their cont. overleaf

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26

cont. from page 25

mobile, so it’s a direction, or a channel that is really growing very fast for banks and also for fintechs in terms of lending to the population.

Now normally when you borrow the financial institutions would check with the [credit] bureaus to manage their risk. If you look at the traditional scorecard that you get from a bureau they are built around long-term loans, a mortgage, car loan, or personal loan, with payback terms from four to 20 years, but in terms of assessing risk and you know and behaviour and propensity to pay over these small short term loans, some of which last just one day with an average value of $40 we felt we needed a more predictive solution to provide to these lenders and that’s really how the Mobile Loan Scorecard came about.

We take existing credit bureau data and records that have all come in from the traditional sources, the credit information sharing framework, and extra data from other sources such as the fintechs that are already sharing with us today. All together this means we have about 80 to 85 per cent coverage of mobile loan data and enables us to then have the data to look at over a period of time and, using our own internal IP, use that to be able to build very specific scorecards that then can be taken and be adopted as a plug and play, with any player, whether it be a new player or an existing player who then wants to grow and differentiate.

Is this trend of leveraging extra information, extra sources and technology going to feed into your greater portfolio with your other credit rating offerings?

Yes it will, and it’s a very key strategic area that we are looking at and are focusing on as TransUnion. This year it’s really been around putting our foot in there and to start building the solution—we are as good as our data.

Our data is really going to grow exponentially the more we tap into the mobile space. That then will feed into us into getting much bigger data that we can build our solutions around, whenever we go talk to the banks, to the commercial companies, and any other vertical that you’re targeting, we’ll have almost two to three times the amount of data that you would have if you only worked with a traditional channel, so we are very excited about this vertical and this space.

What kind of appetite are you seeing from the banking and finance community for this kind of solution?

Very good, since the launch there’s been a huge amount of interest from across the industry. The traditional lenders like the banks are looking at the market, especially in Kenya with the interest rate cap and dropping profit margins, at how they can be

We’re talking about almost 20 plus players currently in the mobile loans fintech space, and then of course the major banks as well, but what has been lacking is that almost everyone is doing the same thing. [The Mobile Loan Scorecard] allows existing lenders to start being more innovative and more aggressive in terms of how much they can lend, what kind of limits they can give to enable the amount of growth in their portfolio.

Will the extra data provided by the Mobile Loan Scorecard help solve part of the problem lenders are facing with high numbers of nonperforming loans?

Yes it will. From engagements with industry participants that we are already partnering with, or exploring partnership opportunities with, we are seeing that the more data we can get, especially on those who are

We are as good as our data.

– Billy Owino – more efficient and take advantage of the mobile loans channel and be more predictive and assess risk better. The Scorecard really comes into play in helping them figure that out as a source that has excellent data they can rely on. It gives them the ability to plug the Scorecard in, launch today and go to market very quickly as a new lender.

Existing lenders are starting to look at how they can differentiate.

One trend that we have seen so far is that the success of M-Pesa, and mobile money in general, in Kenya and this region has led to many players arriving in the mobile loans space.

traditionally unbanked, will help build a better risk portfolio. Today the start is whether they’ve borrowed, or how they have transacted on their M-Pesa and the like, but for example we are partnering with M-Kopa Solar. M-Kopa Solar has excellent data in terms of how their [products] are performing and when customers are paying for their solar panels. With that kind of data it’s also helping again to build a better profile on some of those users, and in a unique way the more data you can come across the better because it really helps build a better profile for these users vis-à-vis just data from the traditional borrowing channels.

www.bankerafrica.com

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23/07/2017 11:14

sector focus

demographics

Demographic windfall A new report from Renaissance Capital has pointed to Central Europe’s development as investmentpositive for MENA countries Changes in the working environment in Europe will be an economic boon for MENA (CREDIT: UBER IMAGES/SHUTTERSTOCK).

I

n a note entitled Thoughts from a Renaissance man: CE3 demographics to create MENA jobs, the emerging and frontier markets investment bank has pointed to the rising costs associated with Central European countries as being beneficial to Morocco, Tunisia, Egypt and Turkey as favoured FDI destinations.

To ascertain as to the reasoning behind this, some examination of Central European states is needed.

A higher employment rate across Central European countries has led to wage growth for the region. The report notes that Hungarian wages rose 15 per cent year-on-year in

April, and unemployment rates have roughly halved from Estonia to Poland over the course of the last five years.

Increased wages has added potential inflationary pressures to the economy, in additional to driving costs up in the supply curve.

On the subject of whether booming Central European wages will force interest rate hikes, Charles Robertson and Vikram Lopez, authors of the report, said, “Probably not in the near term. So far, CE3 (Central European Three: Poland, Hungary and the Czech Republic) has looked more like Japan. Despite three to five per cent unemployment, and a workforce shrinking by one per cent

27

a year, overall wage inflation has been relatively modest (this is true in the US too). But the latest wave of automotive industry pay hikes suggest inflation should pick up; especially when labour participation rates are as high as 77 per cent in the Czech Republic. We and the market expect the first 25-bpt hike here, followed by Poland and Hungary. Romania should have further to run than these three, given labour costs are two-thirds of Hungary’s levels and the employment rate has far more room to rise.”

The pair go on to argue that Central Europe is never likely to offer firms the same combination of educated, low cost and high labour supply as it did in the same 1990s. As such, the argument is that North Africa, Turkey and perhaps Ukraine may see the benefit of industrial investment moving abroad.

The report notes that Morocco has already rivalled CE3 as an investment choice for French companies, with wages that are much lower without the same upward pressure.

Of note is that although demographic trends in the two regions are similar, the total employment rate in the MENA countries mentioned above sits at around 40 to 50 per cent, in comparison with 60 to 80 per cent in Europe. The conclusion here is that European firms and investment capital may move to the North African countries to take advantage of a readily available, cheaper labour pool.

“There is much more potential supply of labour on the EU’s doorstep– and this untapped resource is largely female. Educational access, particularly for females aged 11 to 17, has expanded dramatically in the past 20 years,” said Roberston and Vikram.

“In Turkey, despite a government that offers inducements to women to remain at home, the consequence has been a rise in the female employment rate from one in four women to one in three over the past decade, which cont. overleaf

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sector focus

demographics

28

cont. from page 27

is responsible for over fourth-fifths of the rise in the overall employment rate to 54 per cent. We suspect similar change is coming in North Africa over the coming decade. Cheap wages and better human capital means MENA should become more attractive to FDI. This can answer the ‘where will the jobs come from’ question about MENA.” “The Czech Republic, Hungary, Poland and Slovakia together

attracted an average 2.2 per cent of global FDI between 1993-2014.

Morocco, Egypt and Tunisia attracted just 0.6 per cent of global FDI. Turkey also attracted just 0.6 per cent of global FDI. What we have seen since then is that the relative attractiveness of central Europe has already fallen and interest in MENA has picked up since about 2005,” added Robertson.

The rise of the workforce in central & eastern Europe and MENA Population aged 15-64, mn - UN Population Projections via Renaissance Capital 2015 56

62 53

50

55

40

31

30

29

27 25

26 27

20

23 24 13 12

Romania

Morocco

Algeria

Poland

Ukraine

Turkey

Egypt

0

Iran

10

8 8

7 6

7 7

7 7

Hungary

59

Greece

56

Czech Republic

60

2015

Tunisia

70

Source: UN, Renaissance Capital

“As an indication of how things are going, 2013 was the first year in which Turkey attracted a greater share of FDI than central Europe. 2015 was the first year in which MENA and Turkey both attracted a greater share of FDI than Central Europe.”

However, the report concludes by noting that the advantages that the MENA region has for the future are unlikely to be reaped immediately.

The Euro zone requires another one or two years of strong growth in order for global investors to be looking at expanding industrial capacity at its periphery. North African countries can use this time to prepare though.

Solving security issues and implementing pro-business reforms should be high up on the agenda.

Furthermore, the wave of investment into the region is also likely not going to be as large as that experienced in the Central European countries in the 1990s. Foreign direct investment is likely to improve significantly though, which will help improve North African GDP per capita, and improve the political situation across countries in the region.

North Africa now educated most of its 11-17 year old girls; which is good news for employment in the coming decades Female secondary enrolment ratios in MENA region (%, gross) Algeria

Egypt, Arab Rep.

Morocco

Tunisia

Turkey

100 80 60 40 56

59

56

2015

62 20 53

2015

55

2013

2011

2009

2007

2005

2003

2001

1999

1997 7

7

7

7

6

Hungary

7

Greece

8

Czech Republic

8

Tunisia

Romania

Morocco

Algeria

Poland

Ukraine

Turkey

Iran

Egypt

page 27-28 Sector Focus 046.indd 28

1995

23 24 13 12

www.bankerafrica.com

1993

1991

1989

1987

26 27

Source: World Bank, Renaissance Capital

1985

1983

27 25

1981

29

1979

31

1977

1975

1973

1971

0

23/07/2017 11:04

bleed guide.indd 1 Untitled1 1-

16:58 14:05 2017/06/13 2017/02/06

sector focus

trade

30

China: here to stay McKinsey argues that the Africa-China economic partnership is bigger and more multifaceted than previously believed in a new report

C

hina has had a rapid ascension in Africa since the turn of the millennium to become the continent’s biggest economic partner across a myriad of arenas from trade and investment to infrastructure and aid.

McKinsey’s new report, entitled Dance of the lions and dragons aims to provide a picture of the relationship between Africa and China—a subject which has often been challenging to fully understand due to the limited data availability. The study was conducted across eight countries that together make up some two-thirds of Sub Saharan Africa’s GDP. A key finding of the report is that there are already over 10,000 Chinese firms operating in Africa, four times over the previous estimates. The vast majority of these, 90 per cent, are private firms operating in a wide range of industries—with manufacturing making up a third.

The report notes that Chinese firms handle 12 per cent of Africa’s industrial production at present levels—valued at $500 billion a year. However, in infrastructure Chinese involvement is significantly more pronounced, making

up nearly 50 per cent of the continent’s international engineering, procurement and construction markets. China’s own rapid pace of infrastructure construction has led to the country’s contractors having some of the most efficient cost structures in the world, the report adds. One African government official interviewed

by McKinsey for the report stated that Chinese firms are routinely as low are 40 per cent cheaper than the next lowest bid of similar quality.

Furthermore, amongst the 1,000 firms the report surveyed, nearly a quarter stated that initial investments were recovered in a year or less, with half reporting that it had taken three years or less to make back initial investment.

Nearly a third of the Chinese firms surveyed also recorded profit margins in excess of 20 per cent. The report adds that in sectors were data was available the profit levels of Chinese firms’ are significantly higher than that of their African competition.

To the question as to whether Chinese firms were planning to stay and make a long-term commitment to Africa, 74 per cent of those firms surveyed said they felt optimistic about the future with confidence found across all sectors.

Additional support for the longevity of these projects can be found in the fact that of those surveyed 44 per cent report having made capital-intensive investments, such as building factories or purchasing manufacturing equipment.

On average, the report continued, less than one-third of companies surveyed were focused on contracting or trade, which require lower levels of investment and, as such, lower levels of commitment to stay in Africa.

Kartik Jayaram, a Senior Partner and co-author of the report said, “Chinese engagement with Africa is set to accelerate—by 2025 Chinese firms could be earning revenues worth $440 billion, from $180 billion today. Additional industries could be in play for Chinese investment, including technology, housing, agriculture, financial services and transport and logistics. However, to unlock the full potential of the ChinaAfrica partnership, we have identified 10 recommendations for Chinese and African governments as well as the private sector. To highlight two key ones—African goverments should have a China stragegy and the Chinese government should open financing and provide guidance to Chinese firms.”

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sector focus

trade

31

Exhibit E1

Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?

1#

1#

Trade partner

1#

Infrastructure financier

Foreign direct investment growth

3#

Donor

10,000+

%30+

~%90

Chinese firms in Africa

Chinese firms in manufacturing

Private-owned Chinese businesses

440$ billion Africa-China opportunity

%89 Local employees

by 2025

Ten recommendations to accelerate the Africa-China partnership: 1

6 Chinese firms:

African governments

2 Build China-capable bureaucracy

1

Chinese government

2

3

3

9

Open government

10

4

5

growth options

7 African firms: Decide where and how to play

8 African firms: Drive step-change in productivity

4 Extend responsible business guidelines to

Private sector

6

5 Use results-based aid approaches

1 Public-private partnerships.

7

8

9 Establish agriculture demand deal

10 Switch to PPP1 model for infrastructure

SOURCE: McKinsey analysis

12

Dance of the lions and dragons: How are Africa and China engaging, and how will the partnership evolve?

www.bankerafrica.com

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32

country

governance

African governance surges Most countries across Africa have robust corporate governance codes of practice present, says a joint study by ACCA and KPMG

I

n a new report, titled Balancing Rules and Flexibility for Growth, the ACCA (the Association of Chartered Certified Accountants) and KPMG have found that the standards of corporate governance in 15 countries across Africa align well with the Principles of Corporate Governance released by the OECD (Organisation for Economic Co-operation and Development) released in 2015.

The fifteen countries included in the study were Egypt, Ethiopia, Ghana, Kenya, Malawi, Mauritius, Morocco, Mozambique, Nigeria, Rwanda, South Africa, Tanzania, Tunisia, Uganda and Zambia. Corporate governance requirements for listed companies in these countries were examined against benchmarks across four tenets of corporate governance derived from OECD principles: leadership and culture, strategy and performance, compliance and oversight and finally stakeholder engagement.

The study found that in all of the markets studied corporate governance codes or equivalents were already in place, with most countries having adopted their first codes from 2000 onwards. KPMG and ACCA noted that a third of the countries studied had

also recently reviewed their corporate governance codes, and added that now might be the right time for the other countries to make improvements in order to encourage more foreign direct investment and the update to the OECD Principles of Corporate Governance in 2015.

Although the report noted that the standard of corporate governance frameworks in Africa is relatively strong, South Africa emerged as a leader at the forefront of corporate governance framework development when compared to developing, and even some developed, economies which had been studied in the Phase 1 report conducted in 2014. However, the study added that in terms of overall results, even the lowest-rated markets were performing strongly in comparison to the results studied in Phase 1.

“A number of countries have had corporate governance codes for some time and the experience of implementing them has created practical learning points,” said Irving Low, Partner and Head of Risk Consulting, KPMG in Singapore. “The African markets will be able to leverage the lessons learned in the evolution of similar codes in other markets.”

CORPORATE GOVERNANCE RANKINGS MARKETS

SCORES

South Africa

145

Kenya

128

Mauritius

126

Nigeria

124

Uganda

120

Egypt

109

Rwanda

106

Morocco

102

Tunisia

98

Mozambique

90

Tanzania

85

Ghana

82

Zambia

80

Malawi

67

Ethiopia

59

Source: Balancing Rules and Flexibility For Growth – A Study of Corporate Governance Requirements Across Global Markets Phase 2 – Africa, ACCA, KPMG

Irving went on to add that the implementation of strong corporate governance will help prepare companies for future anticipated high growth rates in African markets.

Future high growth rates will likely lead to rapidly changing business

cont. overleaf

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country

governance

34

cont. from page 32

governance requirements across environments and corporate framework and how fast to do so Africa. Each market needs to governance will help companies adapt may be unique to each market, and consider their specific political, to shifting market conditions. there is no ‘one-size-fits-all’, there is legal, economic, social and cultural Jamil Ampomah, Director, Sub value in continuing to compare and environment when making decisions Saharan Africa, ACCA, said, “As incorporate internationally accepted about developing, defining and these markets grow and evolve, more standards of corporate governance.” enforcing corporate governance awareness and effort will be needed to “We hope this study can contribute requirements,” said Irving. strengthen remaining critical areas of to raising the standard of corporate corporate governance, particularly for remuneration structures, performance evaluation, risk governance, and board composition and diversity.”

The study also noted TUNISIA CG Code: Yes that most markets mandate Strength: Voluntary MOROCCO Introduced: 2008 CG Code: Yes Revisions: 2 basic requirements and Strength: Comply or Explain EGYPT Latest revision: 2012 Introduced: 2008 CG Code: Yes then supplement this with Revisions: 0 Strength: Comply or Explain Latest revision: NA Introduced: 2005 voluntary non-mandatory Revisions: 3 Latest revision: 2016 additions. The majority of corporate governance requirements came from ‘comply or explain’ rules and voluntary instruments but this may not be the most NIGERIA ETHIOPIA CG Code: Yes CG Code: Yes effective solutions for all Strength: Apply or Explain Strength: Comply or Explain Introduced: 2003 Introduced: 2011 markets. ACCA and KPMG Revisions: 2 Revisions: 0 Latest revision: 2016) 2011 ) Latest revision: NA GHANA conclude that a balanced CG Code: Yes Strength: Voluntary approach which mandates UGANDA Introduced: 2002 CG Code: Yes Revisions: 1 core tenets and supplements Strength: Voluntary Latest revision: 2010 Introduced: 2002 these with a principles-based Revisions: 1 KENYA Latest revision: 2008 CG Code: Yes approached may provide an Strength: Apply or Explain Introduced: 2002 effective framework with will Revisions: 1 Latest revision: 2015 RWANDA give companies the flexibility CG Code: Yes Strength: Comply or Explain to establish the most relevant TANZANIA Introduced: 2012 CG Code: Yes Revisions: 0 practises for their scenario.

Strength: Comply or Explain Latest revision: NA Introduced: 2002 Revisions: 0 However, regardless which Latest revision: NA of these two approaches are ZAMBIA implemented, success depends MALAWI CG Code: Yes CG Code: Yes Strength: Comply or Explain on strong oversight Strength: Comply or Explain Introduced: 2005 Introduced: 2001 Revisions: 0 Revisions: 1 Latest revision: NA and enforceability.

Latest revision: 2010 “Achieving the right balance between rules and flexibility MAURITIUS CG Code: Yes SOUTH AFRICA MOZAMBIQUE is a tricky task for any Strength: Apply and Explain CG Code: Yes CG Code: Yes Introduced: 2003 Strength: Apply and Explain Strength: Voluntary country, but of fundamental Revisions: 1 Introduced: 1994 Introduced: 2011 Latest revision: 2016 Revisions: 3 Revisions: 0 importance for those where Latest revision: 2016 Latest revision: NA corporate governance is critical to support robust economic growth,” added Jamil. “Although decisions about how to shape a Source: Balancing Rules and Flexibility For Growth – A Study of Corporate Governance Requirements Across Global Markets Phase 2 – Africa, corporate governance ACCA, KPMG 1

2

3

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36

country

trailblazer

Revving up Rwanda Banker Africa spoke with the CEO and Co-Founder of SafeMotos, Barrett Nash, on his aim to transform the Rwandan motorcycle taxi industry

SafeMotos rates each driver on their safety level.

T

raffic fatalities are the second biggest killer in emerging markets worldwide, behind HIV/AIDS. In cities such as Kigali, the home base for this month’s Trailblazer, motorcycle taxis constitute 80 per cent of road accidents. A relatively new company, SafeMotos, is looking at trying to improve the safety of these motorcycle taxis.

The company began as an idea in the summer of 2014 by Co-Founder and CEO, Barrett Nash. Simply put, SafeMotos aims to track the safety level of its drivers through the sensors already existing on a smartphone and then connects those safe drivers with customers with an Uber-like interface.

“We began researching how we could use the sensors in smartphones and there had been a lot of good

research already done in the industry by, for example, American insurance companies,” said Nash. “We made a system where we were tracking how drivers drive via the sensors in the smartphone and then we were using an Uber-style map interface to connect drivers to customers whilst the drivers needed to maintain a certain threshold of safety.”

After Nash and the company’s other Co-Founder and CTO, Peter Kariuki, had the idea formulated it came time to seek funding. The pair were approached by an international startup accelerator based out of Ireland in which they participated in before returning to Rwanda to launch SafeMotos.

Nash noted that although raising money isn’t necessarily that difficult, assuming the company possesses a

legitimate traction graph and business model, it can be hard for companies looking to create products in previously unexplored arenas. With a new product that has no history in a marketplace, and as such no metrics by which to extrapolate revenue or growth, investors in the region can still be wary of parting with capital.

The most crucial aspect that has made SafeMotos viable is of course the relatively new ubiquitous nature of smartphones. “I think the fact that we’re in an era of $50 Android smartphones is one of the biggest paradigm shifts in the world that has been severely underutilised,” said Nash. Indeed, the technological aspect has not held the company back at all, instead the bottleneck is in the startup unit economics. Put simply, in an economy in which consumers have low

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country

trailblazer

disposable income there is less space for a third party to insert itself into a transaction as the costs involved at that much harder to swallow for the customer whilst still ensuring that the business turns a profit.

SafeMotos differs from Uber in that it is focusing on moving preexisting motorcycle taxi drivers onto its platform in a partnership. Rather than trying to compete with the local taxi market, drivers look to join

on-boarding were. In order to solve this problem SafeMotos now works with local cooperatives which assist the company in finding new drivers as well as making sure that current drivers maintain their equipment at a sufficient level.

On the subject of additional drivers, Nash stated that by far the most successful form of marketing has been simple word-of-mouth. “I find that pretty much all of our driver

I think the fact that we’re in an era of $50 Android smartphones is one of the biggest paradigm shifts in the world that has been severely underutilised.

– Barrett Nash, Co-Founder & CEO, SafeMotos –

SafeMotos in order to gain access to more customers, whilst still being able to make normal pick-up fares, so Nash argues that this makes SafeMotos a complementary product to the local motorcycle and taxi market.

In addition, part of the company’s focus on its drivers can be seen in its ongoing iterative efforts to on-board more drivers. “In the beginning we would give drivers’ smartphones but that didn’t work out very well because drivers didn’t treat them respectfully,” said Nash. So instead the company turned to asking drivers to use or buy their own smartphones, which was also not as successful because many of the smartphones were difficult to work with. Likewise, when the company began to offer to finance the drivers’ smartphones, it found it hard to control exactly who the drivers it was

recruitment and a huge chunk of our passenger recruitment is based off of word of mouth of which probably the most effective has been incentivised word of mouth,” said Nash. For drivers this tends to mean that if they bring on-board a new driver for the company, and after he has done a certain number of trips, they may gain a small monetary reward. The model for customers is similar in that if one shares the app and the new customer completes a trip they might receive some money or a free trip.

By joining SafeMotos drivers also become part of a more formal financial industry. A driver will have credit history after joining, and access to the company’s in-app automatic savings programme. Furthermore, SafeMotos also offer loans to their drivers, although this is a relatively new feature known as

37

Family Wallet. Although the functionality is pretty simplistic at the moment, Nash sees this as an important future development for the company.

“My assumption is if we do this intelligently we can be pairing the data we have from our drivers because we can say you ‘you’ve done 1,000 trips with SafeMotos, we have this history on you, we’ve seen all this location history on you, so you’re somebody who’s worth giving a loan to’,” said Nash. “It’s almost a necessity for us to give loans because we want to make sure that we have as low barriers to entry as possible for our drivers—so we want them to take loans from us so they can access to smartphones and other services to help make the on-boarding process more effective.”

By engaging drivers further into a financial ecosystem as part of their partnership with SafeMotos Nash hopes to be able to improve driver retention rates. “We need to make sure we’re providing drivers maximum value but we also need to make sure we have a high retention rate among them and by providing additional services to drivers they may feel less obliged to go to a competitor.”

The demand for SafeMotos product is self-evident in the figures that Nash was able to quote. When it launched in 2015 the company recorded 4,000 trips, in 2016 80,000 trips and in this year so far the SafeMotos has done more than 100,000 trips.

“We’ve been growing quite rapidly, which is something I’m proud of but it’s also quite stressful,” said Nash. “We’re currently working with 150 drivers which is a drop of the bucket in terms of the number of total drivers here in Kigali. I believe rather than conquer the market overnight it’s about creating a product to fit and I still think that it’s something that everyday we’re making progress on.”

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country

technology

38

Machine learning—taking your security team to the next level Cybersecurity can be augmented by taking full advantage of the benefits of machine learning, says Raj Samani, Head of Strategic Intelligence, McAfee LLC

M

achine learning is all around us, enriching our online lives every day. We see it with our own eyes when search engines accurately predict what we’re looking for after we type only a few letters. We feel it protecting our bank accounts evaluating credit card transactions for signs of fraud. We notice it in selections of articles and ads in online newspapers. We no longer think twice about these conveniences; in fact, it’s hard to imagine online life without machine learning.

In relation to cybersecurity, machine learning has been changing the game as a means of managing the massive amounts of data within corporate environments. However, machine learning lacks the innately human ability to creatively solve problems and intellectually analyse events. It has been said time and again that people are a company’s greatest asset. Machine learning makes

security teams better, and vice versa.

Human-machine teams deliver the best of both worlds.

MACHINE LEARNING ALLOWS ENDPOINT SECURITY TO CONTINUALLY EVOLVE TO STOP NEW ATTACK TACTICS

Raj Samani

The dark web is driven by intelligent bad actors who are often financially motivated to create new threats with new attack techniques. Security becomes personal when considering the people behind the attacks, making the human-machine team the best sustaining defence. CSOs empower security operations to blend the best elements of art and science, where security team employees provide creative responses and leverage machine learning to provide highperformance scientific responses.

While machine learning can detect patterns hidden in the data at rapid speeds, the less obvious value of

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country

technology

machine learning is providing enough automation to allow humans the time and focus to initiate creative responses when responses are less obvious. By using a filter for optimisation across the best advantages of human and machine elements, it’s easier to evaluate the relationship between them.

MACHINE LEARNING ADDS CRITICAL CAPABILITY TO SECURITY STRATEGIES

The process of security researchers analysing malware to develop signatures is still important, but only as a capability to address the large volume of known malware because it cannot be expected to evolve quickly enough to meet the rapid pace of malware being introduced to the wild. Machine learning becomes the fastest way to identify new attacks and to push that information out to endpoint security platforms. The key differentiator in incorporating machine learning into endpoint security is the amount of relevant data consumed by the algorithms.

ELEVATE SECURITY TEAMS WITH MACHINE LEARNING

People matter the most, but combining human intelligence with machine-learning technology creates strong security teams. The visibility into tactics throughout the entire attack chain that machine learning affords is critical to enhancing the relationship between security teams and technology. Machine learning enables security teams to devise new defences quickly to adapt to attackers’ automated processes and make it more difficult for them to be effective. Remember, machine learning places the time sequence of activity observed between security products. With machine-learning assistance, security teams have

greater insight into who the attacker is, the methods being used, where the attacks are coming from and how they are spreading, as well as which security measures are working and which are being defeated.

Most importantly, the presentation of machine-learning results enables people in security teams to do what they do best—create intelligent, innovative and effective solutions to new threats before significant damage is done to the business. If people are the company’s greatest assets, then machine learning helps make them even greater.

To close, machine learning should be a critical component of

39

an enterprise’s endpoint security strategy. Given the volume and evolution of attacks hammering away at endpoints, security must be able to adapt without human intervention, and must provide the visibility and focus to enable humans to make more informed decisions. Machine learning has come of age with big data driving accuracy up and false positives down. The proof of successful human and technology teaming will be seen in the ability to rapidly dismiss alerts and accelerate solutions to thwart new threats.

Your users deserve the best that cybersecurity has to offer, and today the best endpoint security products leverage machine learning.

How can machine learning help save security teams’ time and energy?

1 . User experience is optimised - Machine-learning algorithms feed information to the endpoint about file attributes that indicate the presence of malware.

These attributes may be related to type, size and source, as well as header anomalies and detected sequences of operating system calls. A quick scan before execution allows security to perform its preliminary triage without souring the user experience.

2. Suspicious behaviour flagged automatically—once the program is running, machine learning on the endpoint monitors behaviour for signs of an attack. This runtime detection is keyed by information on attack tactics again uncovered by machine-learning analysis of malware samples in the datacentre. While pre-execution checks file attributes to make a malware decision, runtime execution requires knowledge of specific actions attackers are likely to use. For example, ransomware can render your files useless in less than a minute. Machine-learning analysis of ransomware attacks may uncover timing and access patterns of file shares that would indicate an attack is underway—allowing endpoint security to stop the threat before all files are encrypted.

3. Highly valuable investigation and response data available automatically— Helping security teams respond to an incident, machine learning can identify suspicious connects and create alerts based on equations. In this case, security analysts need precise information on the threat such as files touched, registry changes, server connections, etc. Because machine learning looks across multiple dimensions, much of the data that incident response teams require is already available, but has traditionally required extensive manual correlation. Ideally, highly valuable investigation and response data would be available through the already-present endpoint management console. The presence of machine-learning technology results in significant time savings— by a factor of 10 is not uncommon—that can help security teams keep the business running.

Source: McAfee LLC

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Can blockchain really snatch up to 40 per cent of your revenue? which sustains the technology, there could be considerable security risks and associated reputational damage.

Centralised systems such as these, are what blockchain is trying to move away from. Blockchain is a decentralised, distributed technology that makes it impossible to hack into a system, with no single entity controlling it.

Information is therefore secure. This is not to say that telco and traditional banking solutions compete with blockchain, instead, financial services providers need to look at utilising this technology to avoid this.

REMAINING COMPETITIVE Banks in Africa should be looking at blockchain as an essential tool to secure their mobile banking interfaces (CREDIT: posteriori/SHUTTERSTOCK).

Darryl Proctor, Product Director, Temenos, discusses the appeal of blockchain technology for banks

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ast year, a blockchain research arm of the South African bank, Rand Merchant Bank’s (RMB), stated at the Gordon Institute of Business Science, that the technology could take up to 40 per cent of a bank’s revenue if it became a global standard. But what is the appeal and how can banks embrace this technology effectively?

SECURITY

A high majority of the region’s population are now using telco for their financial services (most famously Safaricom’s M-Pesa in Kenya). But these telco payment solutions, and traditional banks usually operate centralised technology. This means that if there is a malfunction in the system, or a failure of the centralised server

Approximately 80 per cent of SubSaharan Africans are unbanked, and blockchain also offers an opportunity to effectively address this. At the moment most payments services only work between two parties if they both have accounts.

Similarly, mobile money services often did not allow for consumers to easily pay each other on separate mobile networks. But the blockchain could expand interoperability to link these fragmented, closed loop services both domestically and internationally.

Crypto-currencies solve the payment interoperability problem. This works where the digital wallets are compatible and the participants are using the same crypto-currency, which is just the same limitation as today’s credit transfer systems. In addition to enabling more

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unbanked users to send money to other unbanked users, such a backbone would serve to connect the banked with unbanked users in areas such as crossborder remittances and cross-border business-to-business payments.

Blockchain also offers real benefit to African businesses. Investment capital is limited within the region, due to a high dependence on non-Africans as a source of capital and a relatively small financial services industry. However, as entrepreneur Richard Branson highlighted in October last year at the the “Virgin Disruptors” event in London, “if you take somewhere like Egypt, 90 per cent of people have got houses, they’ve got a garden, but they’ve got no piece of paper to show ownership of that ... without ownership of your property, it’s almost impossible to start a business or get a bank loan or anything,”. Blockchain, through distributed ledger technology (DLT), can be used to keep an immutable record of ownership which should lead to the ability to more easily obtain the credit that individuals and small businesses need. This is a good use of DLT, but it would have to be permissioned and it would require the legal system of each jurisdiction to adopt it.

THE TRADE FINANCE OPPORTUNITY

For financial institutions that operate across multiple entities and jurisdictions, blockchain’s ability to provide a centralised store of data or information offers particular appeal.

It can support banks manage liquidity risk. At present, when a corporate makes a payment there is almost no information regarding the recipient, what goods or invoices they are for, or when the funds will ultimately be available. These factors limit the predictability required for forecasting and forces finance and accounting

departments to be reactive instead of proactive. This also creates significant risk for the FIs. Blockchain, through distributed ledger technology (DLT) provides a means to reduce this risk.

It can securely connect previously siloed trade finance participants, providing transparency of the supply chain and a massive reduction of manual processes and co-ordination between institutions. This is because a blockchain-based trade network allows information and business logic to be connected directly to the payment rails themselves. It overcomes the limitations of a correspondent banking network, where remittance data is limited to the few lines on a Swift message. It allows you to programmatically tie business logic, digital assets and payments together on one platform and automate their transfer based on predetermined digital inputs. And corporates are already realising the benefit. In a recent survey conducted by Ovum and Temenos, to 200 corporate treasurers, 75 per cent of corporates in Africa and said they were “interested in solutions based on blockchain technology to reduce trading risks”.

CUSTOMER INSIGHT

This complete, end-to-end transaction transparency that blockchain offers can also support customer engagement, to develop long term relationships, create customer intimacy and boost cross-sales. In addition, it is proving to be beneficial to regulators as well as financial institutions. DLT technology means institutions would potentially be able to address regulatory requirements around financial crime, such as Know Your Customer (KYC), Anti-Money Laundering (AML), and Countering the Financing of Terrorism (CFT).

Blockchain offers a financial transaction ledger that is extremely

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difficult to break or fool, providing details on a transaction or series of transactions. This means computers could sit and monitor the blockchain for suspicious activity without needing to know any personally identifiable information. And it’s fast enough that it could perhaps provide an accurate chain of events across multiple trusted institutions. It can identify, in microseconds, if something peculiar, like uncharacteristic account activity, raises suspicions.

PREPARING TO BENEFIT

Blockchain in Africa is gaining momentum. However, the technology is still new, often complex, and evolving so rapidly that it’s difficult to predict what form they will ultimately take or even to be sure they will all work. There are working/discussion groups, labs and proof of concepts from service providers that that are available for banks to explore and develop technology to support their needs. Banks are also working with providers who have easy access to fintechs with blockchain functionality through platforms such as the Temenos MarketPlace, which is a community of over 100 fintechs.

Despite all that blockchain offers the region, most acknowledge that the blockchain is only an opportunity for banks from a permissioned perspective. But, until blockchain technology matures and the regulatory environment advances, the best option for market participants is to ensure they have an agile core banking platform that will support both easy interaction with other platforms. In addition, banks could also look to automate manual processes for a truly real-time solution. In preparing your systems today, banks should be able to have the ‘pick of the crop’ and be ready to benefit from blockchain technology if it becomes the norm tomorrow.

www.bankerafrica.com

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How Standard Bank is leveraging technology to achieve truly digital banking Banker Africa sat down with Klaas Kruger, CIO, Africa Regions, Standard Bank to understand the bank’s perspective on changing trends and their vision for an African banking landscape driven, among other things, by artificial intelligence and blockchain

T

echnology has transformed the face of banking on the continent in recent years.

In particular, the explosion of smart phone usage has created opportunities for banks to provide far superior banking experiences that traditional banking systems would never have. As customers look for banking to be as easy as shopping online, banks who were early adopters of modern technology have an upper hand to better service their customers and accelerate growth. Banker Africa sat down with Klaas Kruger, CIO, Africa Regions, Standard Bank for a quick catch up on the bank’s strategy, what’s brewing at their innovation lab and understand how they are planning their digital journey.

TECHNOLOGY AS A DIFFERENTIATOR

“We were lucky to realise early on that technology isn’t just an enabler, but a crucial differentiator between leaders and the rest, in the banking arena.

When we evaluate technology—be it our own systems or what’s available in the market—what matters most to us is its stability and robustness, along with its flexibility. Our current core banking platform from Infosys Finacle, has been operational since 2010 and continues to be rolled out across our Africa regions, helping us manage operations across 17 countries. We are constantly looking at adopting new technology that will wow our customers. We are expanding our ecosystem of partners to offer better products, faster and with greater agility than what we do today.”

BRANCHLESS BANKING

“Whilst we are working hard to digitise banking services, we do also acknowledge the need for physical branch presence. The way we see it, though mobile and internet banking is rampant here in Africa, traditional branch banking is not going to disappear any time soon and we need to make sure our technology supports that. For example, a few months ago, we reviewed

Klaas Kruger

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a solution for ‘smarter branches’ coupled with agency banking from Finacle. It suited our plans and we are now implementing it across our RoA operations. Ultimately, our intent is to offer the freedom to choose the channel of banking for every single person who banks with us. Financial inclusion, for us, is as important as staying in the forefront of innovation and being known as a truly digital bank.”

A 150-YEAR-OLD START-UP

“Buy vs build is always an area of debate.

For us at Standard Bank, we believe we would never have been able to grow into the scale we are today, if we had been building systems all by ourselves. Our strategy is a judicious mix of both buy and build, and sometimes even co-create with our partners. To stay sustainable and agile, we took a decision a long while ago that technology would the core of our operations, and constantly updated to stay relevant. In the recent years, we have renewed our core, opening up our APIs and are collaborating with a broader ecosystems consisting of partners and start-ups.

“We believe that a well-developed partner ecosystem is crucial for a sustainable future. Our innovation lab in Johannesburg is always bustling and we’ve had some great dishes coming out from there. We’d like to call ourselves a 150-year-old start-up company, because we’ve changed with times, adopting some fintech style of operations, brainstorming with them and coming up with ideas, and executing them in agile ways that are unprecedented in our organisation.”

PARTNERS – THE BACKBONE OF OUR BANK

“While technology is the heart of our operations, customer satisfaction forms the core of our business. With rapid digitisation, customers expect banks to bring banking to where they

are, providing an anytime, anywhere facility with a seamless omnichannel experience across devices. If we cannot provide this rich digital banking services to our customers and grow with the changing times, we will get knocked out by our competition in no time. This is a key reason why we have been enthusiastically collaborating with the fintech community as well.

“While as a bank, we are focussed on strategy, compliance and creating new products, through our extended arm of partners and fintechs, we are experimenting with new technologies.

An example is the automated bulk note application that we rolled out, that allows customers to deposit cash, without having to visit a branch.

“We look to our partners to help us achieve our business aspirations, by using technology to differentiate ourselves in the market.”

VISION 2025

“We see great potential in a number of technologies to create innovative offerings. While Blockchain has not really taken off at scale we are well aware of the capability and also how our Finacle software can enable these transactions. We are closely following the developments in this field and are thinking about how to integrate and leverage it.

“We are also looking at unifying all systems across our Africa Regions operations and to create a single core banking platform bringing economies of scale. Hence we are focussing on application rationalisation and simplification by leveraging and enhancing the critical mass created on Finacle.

“We predict that mobile banking interactions will continue to increase, and we want customers to be able to experience a seamless omnichannel transactions across our digital platforms. We are focused on truly

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digital, real time banking, eliminating paper handoffs and workflow blockages. We want our bank to be accessible conveniently to end users and for our customer across various aspects of their lives.”

TECHNOLOGY PARTNER Infosys Finacle is one of Standard Bank’s key technology partners and Banker Africa caught up with Sriranga Sampathkumar, Head of Business for Middle East & Africa, to understand his perspective on this partnership and the vision ahead. This is what he had to say: “At one of our recent meetings, someone mentioned that it had been a decade since Finacle had started our partnership journey with Standard Bank. To me, though, it feels like our journey has just begun. From Core Banking to creating an omnichannel experience for the bank’s RoA customers, we are happy to be Standard Bank’s partner of choice, helping provide world class customer service and expand the breadth of operations.”

“A key reason why our partnership matured to a strategic engagement level is because both teams are constantly in touch with each other’s technology roadmap and strategy. Our understanding has helped us tailor our implementation and co-innovate with the bank in many areas. As we continue to build secure and scalable banking applications leveraging developments in robotic process automation, blockchain, biometric authentication, advanced analytics and artificial intelligence, we look forward to enriching the bank’s systems and helping Standard Bank realise its aspiration of being the most innovative bank in Africa.”

www.bankerafrica.com

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Alternative growth Alternative investments are on the rise in MENA, says Paul Isaac, Executive Director, Gulf Credit Partners at Gulf Capital than relying on multiple expansion or financial engineering. At the same time, the financial markets have evolved, allowing for increased complexity in capital structures and a greater variety in financial instruments.

BENCHMARKING RETURNS VISA-VIS OTHER ASSET CLASSES Structured capital has produced truly better risk-adjusted returns as measured against other alternative asset classes. From 2002 to 2012, direct lending funds showed much lower volatility of returns than buyout funds (standard deviation of circa five per cent vs. 17 per cent for buyout funds), while median net returns (measured in IRRs) were more similar to buyout returns (circa 11 per cent for direct lending vs. 13 per cent for buyout).

In general, investors have found that they can trade a marginal reduction in

total returns for a significant increase in certainty of those returns.

Figure 1 shows the horizon pool returns of private capital funds by asset class.

RISKS FACED WHEN INVESTING IN MIDDLE-MARKET STRUCTURED CAPITAL There are a number of risks involved when investing in middle market structured capital. Firstly, structured capital is junior in the capital structure and typically in a first-loss position after the value of the company drops by more than the amount of its equity.

Second, since structured capital is provided through privately negotiated transactions, it is far less liquid than more public securities if it needs to be sold. Thirdly, middle-market businesses often face greater risks compared to larger companies.

Figure 1: Horizon pool returns of private capital funds by asset class 20% 15% Median Return

F

or investors looking to add alternative asset exposure in the Middle East, the selection of managers has historically been constrained to a handful of firms with limited track records and unfocused strategies. In the mid2000s, when significant appetite for alternative investments in the Middle East first developed, almost no fund managers existed to meet the demand.

First-time teams were assembled by various sponsors. As a result, Limited Partners—almost exclusively from within the region—had no track records to evaluate and were forced to choose their investments based on name recognition, such as local banking or commercial groups.

Now however, Limited Partners can assess the performance of these managers against earlier promises.

Exacerbated by the challenges that arose in the aftermath of the global financial crisis, many of these first-time funds failed to source sufficient investment opportunities and simply withered away. Others failed to meet return expectations, either due to overpaying for deals, neglecting to manage relationships with family founders or struggling to secure exits. A select few asset managers in the Middle East were able to deliver on promises of both deployment and returns, and the market has now rationalised around them.

Our region has come a long way in terms of sophistication. Today, the major firms in the region embrace the concept of creating value in companies rather

10% 5% 0% -5% -10% 1 year

3 years Private Equity Infrastructure*

Source: Gulf Capital

5 years Private Debt Natural Resurces

10 years Real Estate

* Insufficient data for 10 year infrastructure horizon

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For example, due to their smaller size, the loss of a customer or increases in the cost of goods sold may have a larger impact on the borrower’s EBITDA than it would on a larger company. Finally, in most cases structured capital is unsecured (share pledges in some cases are the only available security) so in a bankruptcy scenario, there is no recourse to any tangible asset for recovery.

Gulf Capital believes that risk management is a fundamental area of focus for structured capital-focused funds. To mitigate these risks, Gulf Capital employs a number of strategies including: assessing the value of downside protection offered by the covenant package; carefully reviewing the countryspecific legal limitations that impact the deal’s security package and structure the investment around it; and the regular oversight of portfolio performance, active portfolio monitoring, identifying early signs of performance deterioration and intervening quickly and constructively.

In addition to the above, consideration should also be given

to the overarching risks which are faced by many in emerging markets jurisdictions, including: political risk; regulatory risk, including frameworks that are not in tune with international standards; currency risk; and compliance risk (corruption, politically exposed person (PEP), anti-money laundering (AML), combating the financing of terrorism (CFT)).

STRUCTURED CAPITAL VARIANCES BY REGION

There are a number of main differences in structured capital investment activities across the United States (US), Europe and emerging markets.

While the size of the emerging markets is smaller than the US and Europe, the returns available for investors can be significantly higher than the developed markets.

Premiums of at least 300bps500bps above developed market peers are seen in emerging markets, while typical transactions entail much less leverage risk (exampled by 3.0-3.5x in the Middle East and

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North Africa (MENA) vs. 5.5x in developed markets). The higher premiums are driven by: reduced competition of funds able to negotiate with borrowers on a bilateral and proprietary basis; lack of robust intermediation; and typical emerging markets-perceived risks including FX, regulatory and liquidity.

Figure 2 outlines the differences between regions in how structured capital fund managers generate returns and Figure 3 shows returns across regions.

CONCLUSION

In summary, Gulf Capital believes that middle market structured capital is a flexible financing tool for companies and an attractive asset class for investors to consider when looking to diversify their portfolio. Compared to private equity, structured capital typically has a higher risk-adjusted return and predictable cash flows, and relative to high yield bonds, structured capital has a significantly higher yield, shorter duration and greater investment control.

Current market Figure 2: US, Europe and emerging market returns generation trends support Europe US Emerging Markets investing in n Zero or occasionally 1.0x n 1.0x-2.5x on senior debt n Zero or occasionally 1.0x Fund level leverage structured capital in n Historically 50.0% PIK / 50.0% cash pay is standard n Historically 100% cash pay n Majority cash pay with some element of PIK Current income addition to private n 2.5% - 4.0% n 1.0% - 2.0% n 2.0% - 3.0% Original fees n Sponsor n Generally bank or manager n Sponsor and advisors Original channels equity and high n Driven by chapter 11 proceedings n Workouts tend to be consensual and amicable Workout and bankruptcy n Workouts tend to be consensual and amicable yield. Historical n Automatic tendency to head performance show straight to bankruptcy court the attractive returns Source: Gulf Capital of the asset class, but more importantly, Figure 3: Cambridge Associates Private Equity & Venture Capital - Fund Index Summary: Horizon Pooled Return (10-year) we believe that current market 12.42% conditions, especially 9.89% 9.94% 9.53% 9.32% in the emerging 7.7% 5.61% markets, suggest 4.51% 3.7% 3.75% middle market structured capital US Developed Developed Emerging Emerging Africa Latin Middle East All Emerging US Europe (US$) Asia (US$) Asia (US$) Europe (US$) America Markets Mezzanine is well positioned to outperform in the Source: Gulf Capital coming decade.

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Funding the future The future for private equity and venture capital in East Africa is bright, according to Eva Warigia, Executive Director, EAVCA

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he earliest private equity and venture capital funds in the East African region date back to 2007, and, as such, the industry is still fairly nascent. These early funds are only now beginning to exit, with investment rate of returns in the region of 19 per cent—a highly successful figure for what is still a growing industry. In the period 2015 to 2016 the region has seen more exits than it had in the seven years previous.

Much is still to be done to grow the awareness of the value that private equity and venture capital can bring, however, said Eva Warigia, Executive Director, East Africa Venture Capital Association (EAVCA). “SMEs are just now starting to appreciate the value of venture capital and private equity as alternative financing options and have begun to open up to idea of giving up shareholding in exchange for private equity or venture capital.”

Part of the role the EAVCA plays is in spreading awareness and promoting networking between SMEs that may be in need of capital with private equity fund managers or venture capitalists.

Often SMEs in the region are unable to access traditional forms of financing due to large collateral demands of financial institutions, remarks Warigia.

Venture capital and private equity are able to feel this financing gap by providing the capital that an SME might be otherwise unable to access.

Due to the size of the private equity industry in East Africa, the vast majority of businesses that have been

Eva Warigia

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Private equity funds are raising money increasingly from local pension funds and this is a big deal for us because pension funds are the backbone of private equity in developed markets.

– Eva Warigia

invested in remain the typical type of SME. Generally speaking, Warigia says that SMEs with a turnover of between $1 and $5 million are the most likely to be considered for investment—a considerable amount for the local markets in question. “It’s still the very typical SME that is looking at growth or expansion of capital, not really many [funds] are planning in the early stage risk-capital, even though there are some venture capitalists that are looking at a fund in that space. They are, however, very small compared to overall investments in this market… for a company to access that kind of capital it means that it needs to be a relatively well established institution or enterprise,” said Warigia.

The nature of the industries that have been invested in by private equity and venture capital has shifted in recent years, however. In 2015 the EAVCA found that the leading sector for investment by private equity firms was agribusiness—either directly into agriculture, agricultural development or in value-added processing in the agricultural value chain. This year the Association’s follow-up survey has found that there has been a shift from agribusiness to financial services as a focus point for PE. Warigia attributes various factors to this change. Governments in the region have played an important role, with administrations focusing on pushing

their respective economies away from an agricultural land-based economy to more services orientated one. This policy has helped to incentivise investment in the financial services industry.

Following on from financial services, the next sector that has seen interest is manufacturing. “This plays into the regional narrative of countries looking to become hubs for exports, or instead of growing material exports, countries are looking at value creation,” said Warigia.

This trend has been particularly evident in Tanzania, added Warigia.

The country has experienced the most private equity and venture capital interest in East Africa after Kenya, with favourable demographics and a robust agricultural sector playing to its advantage. Manufacturing investment in Tanzania has almost always been aligned with agribusiness due to the importance of the segment to the economy. Examples of manufacturing in this segment tend to revolve around value-added processing, such as food processing or leather tannery.

Tanzania has also seen activity by private equity and venture capital in its energy and infrastructure sector. “Tanzania has a lot of natural resources so it makes it an attractive destination for private equity firms and venture capitalists that are looking at oil and gas infrastructure,” said Warigia. “That is a very natural destination for private equity capital

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and we have seen quite a lot of private equity capital over the last two years deployed in the energy sector for Tanzania because of the oil and gas prospects that are there.”

After Tanzania in terms of current private equity and venture capital interest in East Africa is Ethiopia, according to Warigia, although this is likely to change. Again, like Tanzania, Ethiopia has demographics on its side with a large population which can translate into a ready market for consumer goods. Further positivity can be seen in the shift in Government policy to slowly ease off the private sector and continue a policy of privatisation. In addition, Warigia notes that governance in Ethiopia is

The EAVCA The East Africa Venture Capital Association (EAVCA) was founded in 2013 to represent the private equity industry in East Africa, provide advocacy for industry players, and engage on regional policy matters.

The Association was founded by seven private equity fund managers in East Africa, Abraaj, Actis, Africinvest, Catalyst Principle Partners, Centum, Fanisi Capital and TBL Mirror Fund. The organisation has since grown to 65 members, half of whom are fund managers. Its mandate covers five countries, Kenya, Ethiopia, Tanzania, Uganda and Rwanda.

In all of the countries that the organisation participates in it aims to provide the same thing— advocacy for private equity and venture capital funds in terms of engaging regulators and other public stakeholders, increasing awareness, either to SMEs or regulators, and providing research and intelligence on the industry. cont. overleaf

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cont. from page 47

East Africa deal volume by sector (2010-H1 2017) 50

45

45

No. of deals

15

23 2

5 14

10 5 0

7

2 4 1

Other

28 1 2 10

4 1 4

1 5

7

9

4

6 1

10

9

6

2 5

9

12

11

47

45

17

34

5

11

3 4

3

8

5 2 5

10

8

35

5 4

28

TMT

Mining

FMCG

30 25

3 14 2

generally very good, with companies often maintaining nearly 100 per cent compliance due to Government involvement, making the due diligence process that much more straightforward.

“What really supports the investment case for private equity and investment funds [in Ethiopia] is the appetite for consumer goods, the demographics there, and the possibilities that that can bring in terms of a ready market, twinned with increasing diversification of industry and services,” said Warigia.

These trends suggest that in the future Ethiopia may take the number two spot for private equity and venture capital in the region in the future, unseating the current position that Tanzania holds.

Kenya will likely remain dominant regionally though. The country is still the leading investment destination in terms of private equity funds that have the largest amount of capital deployed.

In addition, most private equity and venture capital firms have picked the

20 15 10

1

5 -

Value

Financial Services

Source: Bloomberg, Reuters, NKC Research, KPMG and EAVCA Private Equity Survey of East Africa 2015-2016

35

23

14 5 2 2 5

40

34

28

-

ENR

50

No of deals

28

30

35

45

6

USD billion

40

20

7

47

5

35

25

East Africa deal value and volume by year (2010-H1 2017)

Number of deals

Source: Bloomberg, Reuters, NKC Research, KPMG and EAVCA Private Equity Survey of East Africa 2015-2016

country as the base for their regional hubs. “The reason for [private equity and venture capital firms selecting Kenya for their regional hub] is that Kenya has a slightly more developed financial services industry and more mature SMEs can be found in Kenya,” said Warigia.

The rising involvement of the local pension fund industry in Kenya is also cause for significant optimism.

Warigia states that it has taken the local pension funds the last 10 years to understand private equity and venture capital as an asset class, and gain the confidence to invest in the industry. The numbers are already on the rise, with 0.15 per cent of total local pension fund assets under management invested in private equity, up from the figure six months ago of 0.09 per cent.

“Private equity funds are raising money increasingly from local pension funds and this is a big deal for us because pension funds are the backbone of private equity in developed markets,” added Warigia.

“We want to see more private equity funds raising their money from the local pension funds. There is a significant impact in terms of raising funds in local currency and the same currency you are deploying in and getting returns in, rather than raising in USD.” For the future, growth in private equity and venture capital can be seen across the board. This translates into new funds, such as round two funds as several that began years ago begin to exit, increasing in size. For example, Fanisi Capital’s Fund I had a funding size of $50 million, with the target for its Fund II being between $75 and $100 million— up to double the size of its first.

The increase in the amount of capital raised will also be supported by an increased number of entries into the private equity and venture capital space. More funds and investors will target the East African region, and Africa at large, seeking the lucrative returns that the sector offers.

www.bankerafrica.com

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Celebrating the best of the best in West Africa!

Preparation and research is underway for the Banker Africa Awards. The Awards are grouped in four regional categories: North Africa, Southern Africa, East Africa and West Africa. >To learn more about the Awards process, please email simon.motwali@cpifinancial.net

CPI Financial

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

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PICTURE OF THE MONTH

Kitchanga, Masisi Territory, North Kivu Province, DR Congo: During the “Know Your Rights” campaign organised by the HIV/AIDS Section of MONUSCO, the Indian contingent of MONUSCO provided medical care and offered medicines to more than 300 patients (CREDIT: MONUSCO/ALAIN WANDIMOYI).

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GOOD GOVERNANCE INFRASTRUCTURE DEVELOPMENT HEALTHCARE ECONOMIC DIVERSIFICATION INTERNATIONAL/BILATERAL TRADE AGREEMENTS DIPLOMACY 0

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