AUGUST 2017 | ISSUE 47
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ISSUE 47 | AUGUST 2017
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Government policy Government p olicy and and commodity commodity recovery recovery aid aid the the West West African African na on na on A CPI Financial Publication
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Bringing Nigeria back Government policy and commodity recovery aid the West African na on
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EDITOR’S LETTER
H
ello and welcome to the August issue of Banker Africa. This month we feature our Nigeria Country Focus on the front cover. Nigeria had been achieving impressive growth over the last decade fuelled by the boom in commodity prices. However, come mid-2014 and the resulting drop in oil prices, along with domestic security and political issues, the country has struggled. Despite this though the presiding Government have made some strides to bringing growth back on track, and the partial recovery in commodity prices means that the country could be poised to return to growth. Turn to page 20 to get the full analysis. On page 38 you can find our interview with the CEO of Arab African International Bank, Hassan Abdalla, who spoke with us about the Bank’s sustainable finance practices. Sustainable finance is an umbrella term for practices which connect economic growth with social, environment and governance. The industry is currently experiencing significant growth with responsible investors and institutions leading the way. We also feature two Trailblazer features this month. The first of which is on Fowler Education and the Akilah Institute. The organisation is looking to help African countries solve the looming and current issue of youth unemployment with a particular focus on helping women getting into the workforce. The full article can be found on page 40. Secondly we spoke with one of the Co-Founders of ValueFinder, a South African company that is looking to drive efficiency in organisations by finding out how every cent that is spent by client affects a company and whether it is profitable.
Explore what banking could be Trusted mobile app security and authentication solutions
Until our next issue,
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IN THE NEWS 6 News analysis: President Kagame to serve another term Essential financial news from around the continent 10 Spotlight: Egypt
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HAPPENINGS 12 Taxing times 13 SBM to list Afreximbank depository receipts
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MOBILE LOANS Keeping score
TRAILBLAZERS Revving up Rwanda
Bringing Nigeria back
Govern Governm ment ent p policy olicy and and commo commodity aid aid the the West dity recover West African recovery African na on na on
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A return to form
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A return to form Ghana looks set to get back on track
ISSUE 45 | JUNE
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www.bankerafrica.com Chairman SALEH AL AKRABI
OPINION 14 Top five GDPR priorities facing
organisations doing business with EU citizens Over half the companies affected by the European General Data Protection Regulation (GDPR) will not fully comply by the date it comes into force, says Gartner
MARKETS 16 Kenyan trade moves continental
The future for Kenya looks upbeat with regional integration highlighted as a positive for the East African nation 18 Optimism that the rand could strengthen quickly fades Zuma’s survival puts pressure on the rand, says Jameel Ahmad, VP of Market Research at FXTM
COUNTRY FOCUS 20 Bringing Nigeria back
Government policy and commodity recovery has come some way to bringing the Nigeria back on track 25 The retreating shadows Nigeria’s shadow economy is due to shrink by 2025
CASE STUDY 28 Bringing the unbanked on board
Lekan Sanusi, Managing Director, Guaranty Trust Bank (Ghana) Limited said that the bank is poised to launch a series of applications and technologies, to bring Ghana’s unbanked to the table 30 Keeping it in the Family Dr. David Thuku, MD & CEO, Family Bank to discusses the Bank’s vision moving forward
34 Islamic finance and the future
SUSTAINABLE FINANCE 38 All eyes forward
Hassan Abdalla, CEO, AAIB sat down to discuss the Bank’s sustainable finance practices
TRAILBLAZER 40 Empowering the next generation
Is education the key to youth unemployment? Karen Sherman, President of the Akilah Institute discusses her organisation’s role 42 Unearthing value Roelf Grové, Co-Founder and MD of ValueFinder believes his company’s method of following transactions could lead to hitherto unforeseen efficiency gains
AWARDS 44 Banker Africa—West Africa Banking Awards 2017 results announced
TECHNOLOGY 46 How will biometrics benefit
ISLAMIC FINANCE 32 Positive growth for African Sukuk
Khaled Al-Aboodi, CEO, ICD outlines the organisation’s vision for the rest of the year
African banks? Gerhard Oosthuizen and Niel Bester of Entersekt discuss how African banks should take advantage of biometrics
INVESTMENTS 48 Sub Saharan M&A on the rise
The value of announced M&A transactions has reached its highest point since 2013
THE VIEW 50 Photo and chart of the month COVER PHOTO: Igor Grochev/SHUTTERSTOCK
Bashar Al Natoor, Global Head of Islamic Finance, Fitch Ratings lays out the future for African Sukuk
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Channeling Data Streams for Competitive Advantage How SASÂŽ Event Stream Processing Is Driving Innovation and Solving Complex Challenges Today, data is constantly flowing in and out of organizations from electrical and mechanical sensors, RFID tags, smart meters, scanners, mobile devices, vehicles, live social media, machines and other objects. As more devices, machines and industrial assets connect and communicate real-time data, ecosystems connecting businesses will harness this data to radically change the way they function and act. Now is the time to take the leap and harness your streaming data to drive your business Forward.
Read more. www.sas.com/za/cds SAS and all other SAS Institute Inc. product or service names are registered trademarks or trademarks of SAS Institute Inc. in the USA and other countries. Ž indicates USA registration. Other brand and product names are trademarks of their respective companies. Š 2017 SAS Institute Inc. All rights reserved. G28381US.0317
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President Kagame to serve another term Earlier this month President Paul Kagame won his bid to serve as President of Rwanda for a third seven-year term
K
agame, 59, won the election by a landslide, receiving over 98 per cent of the vote. Kagame will serve his third term as President of Rwanda, extending his current 17-year leadership. Originally, Kagame would not have been able to seek a third term as President. However, a referendum held in August 2015 led to a constitutional amendment lifting term limits. This amendment has meant that Kagame could conceivably rule until 2034. The outcome of the election was never in much doubt to observers. Kagame remains a popular president who has been in power in one form or another since the end of the Rwandan genocide in 1994 when he took the role of vice president and defence minister. Kagame has been credited as having a transformative influence on Rwanda which has achieved significant development progress since 1994. He has overseen policies which have aimed to transform the East African country’s economy from low-income agricultural to a more service oriented one. Much has been made of the country’s embrace of technology. Initiatives to bring online financial technology innovations have been successful, and there are plans in place to turn Kigali, the country’s capital, into a smart city. Indeed, in our last issue (Banker Africa #46) we covered a start-up looking to shake
Paul Kagame will now lead Rwanda for another seven years (CREDIT: VENI/FLICKR).
up the transportation infrastructure in Kigali by becoming the Uber for motorcycle taxis. Furthermore, on several social fronts Rwanda has prospered. The Rwandan Parliament boasts a 61 per cent proportion of women, the highest figure in the world. In addition, unemployment has seen a marked decline, whilst the country has seen apparent peace, in stark contrast to the genocide that ravaged it only 20 years ago. However, questions have been raised over the result. Outside observers have
commented on an oppressive political environment which has sought to silence dissent, with opposition leaders complaining of a campaign of fear and mistreatment by the Government and electoral institutions. Although Rwanda has been held up in recent years as an example of what is possible with a strong visionary leader with the backing of a country’s population, fears have also begun to spring up as to whether this victory represents the beginning of another ‘forever President’. The African continent is littered with Presidents who began with good intentions following a violent struggle that have since consolidated power and become dictatorial in nature. Strong democratic countries relay on strong institutions in order for the long term survival of democracy. Should power shift or be taken away from these institutions then the viability, or existence, of democracy must be called into question. All eyes will be watching to see whether control moves to the office of the President in the coming years, or is instead strengthened. Come 2024, when Kagame’s new term will be up, the question of whether he should run again should certainly be raised. Official figures point to over 6.6 million ballots cast for Kagame, whilst only 80,000 were counted for opposition parties. Turnout was stated as totalling 96 per cent.
www.bankerafrica.com
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RATINGS REVIEW BANKS AND BUSINESSES Moody’s Investors Service has today assigned first-time long- and short-term Ba1/Not Prime global local-currency deposit ratings to Attijariwafa Bank and Groupe Banque Centrale Populaire (BCP). Moody’s has also assigned both banks Ba2/Not Prime long- and short-term foreign-currency deposit ratings, long- and short-term Counterparty Risk (CR) Assessments of Ba1(cr)/Not Prime respectively and ba3 baseline credit assessments (BCAs) and Adjusted BCAs. Moody’s Investors Service has assigned a B1 rating to the $500 million senior unsecured five-year notes recently issued by United Bank for Africa Plc (UBA).The assigned rating are in line with the bank’s B1 long-term local currency deposit ratings and carry a stable outlook. The issuance will constitute direct, unsecured and unsubordinated obligations of UBA. S&P Global Ratings has lowered its long-term counterparty credit ratings on Arab Tunisian Bank (ATB) to ‘B’ from ‘B+’. The outlook is stable. At the same time the agency affirmed their ‘B’ short-term counterparty credit rating on ATB. S&P Rating Services affirmed its ‘AAA/A-1+’ long- and short-term issuer credit ratings on the African Development Bank (AfDB). The outlook is stable. The ratings on AfDB are based on an assessment of its business risk profile as very strong and its financial risk profile as strong. The Bank also enjoys extraordinary shareholder support through callable capital if necessary.
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ON THE RECORD Zimbabwe’s FBC Insurance implements SSP’s Pure Insurance platform
Musa Bako, MD at FBC Insurance, said, “We needed a system that would enable us to achieve our growth and cost-cutting objectives. Investing in SSP, a technology partner with a broad footprint in the African and global markets, took the risk out of the decision-making process.”
Andersen Tax debuts in Africa
Andersen Tax makes its debut in Africa as the former Partners of WTS ADEBIYI & Associates, a tax firm based in Nigeria, adopt the Andersen name.
AFC provides $28 million subordinated loan facility to Tunisia’s Topic SA
Africa Finance Corporation (AFC) announces it is to provide a $28 million subordinated loan facility for the development of Topic SA’s Halk El Menzel offshore oil concession block (The Helm Project) in Northern Tunisia. The Subordinated Loan Note has a 30 month tenor and will ensure the project reaches first oil production by January 2018.
Xpress Money and TerraPay partner to enable money transfers to mobile wallets in Africa
The partnership will make it faster for Xpress Money consumers to send money to mobile accounts in real time.
Moody’s Investors Service has assigned first time long and short-term issuer ratings of Ba1/Not-prime to Barclays Africa Group Limited (BAGL), and Aa3.za/P-1.za national scale issuer ratings. The outlook on the long-term issuer rating is negative.
SOVEREIGNS Moody’s Investors Service has downgraded the long-term local and foreign currency issuer ratings of the government of the Republic of the Congo to Caa2 from B3 and maintained the negative outlook. Concurrently, Moody’s has lowered the Government’s local currency and foreign currency long-term bond and deposit ceilings to B2 from Ba3. The negative outlook reflects the risks that private sector creditors could incur greater losses than are currently anticipated by Moody’s Caa2 rating. Fitch Ratings has downgraded the Republic of Congo’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘RD’ (Restricted Default) from ‘C’. The issue ratings on Congo’s senior unsecured foreign-currency bonds have been downgraded to ‘D’ (Default) from ‘C’. Fitch has affirmed Congo’s Long-Term Local-Currency IDR at ‘CCC’. The Country Ceiling has been affirmed at ‘B+’ and the ShortTerm Foreign- and Local-Currency IDRs at ‘C’.
Xpress Money boasts a network of over 200,000 agent locations in 165 countries (CREDIT: SLAVOLJUB PANTELIC/ SHUTTERSTOCK).
www.bankerafrica.com
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A QUICK WORD
Africa has experienced tremendous development in the last few decades, however a significant gap in the economic advancement of women remains a huge challenge. Africa is in a second liberation era— the economic liberation. Women can no longer be secondary or marginal. Graça Machel, founder of the Graça Machel Trust that works across the continent to drive positive change across women’s and children’s rights. For these stories and more, visit www.bankerafrica.com
AfDB to invest $24 billion in agriculture in next 10 years
The African Development Bank (AfDB) will invest $24 billion dollars in agriculture as part of its Feed Africa Programme—a strategy for agricultural development in Africa. President of the Bank, Akinwumi Adesina, said this in a speech he delivered at the 50th anniversary celebration of the International Institute for Tropical Agriculture (IITA) in Ibadan, Nigeria. Adesina re-affirmed his conviction that the future millionaires and billionaires Adesina has often said that agriculture will lead the of Africa will emerge from for the African continent (CREDIT: SOMCHAI the agriculture sector. way SANVONGCHAIYA/SHUTTERSTOCK). “Africa is today spending $35 billion a year importing food. That is $35 billion that should be kept on the continent. This is a $35 billion market that young people can tap into to create new wealth each year. To do that requires totally changing the lenses with which we look at agriculture. Agriculture should no longer be seen as a way of life or a development sector, but rather as a business for wealth creation,” he emphasised.
Africa Climate Change Fund launches second call for proposals
The call for proposals is open to all eligible beneficiaries of the ACCF (CREDIT: KWEST/SHUTTERSTOCK).
The Africa Climate Change Fund (ACCF), housed in the Climate Change and Green Growth Department of the African Development Bank (AfDB), is launching a call for proposals. The funding envelope available for this call is $5 million in the form of grants. The Fund is seeking concept notes for projects and programmes in the range of $250,000—$1 million. The ACCF is seeking innovative and impactful proposals that will support African countries to transition to climate resilient, low carbon development, and scaleup access to climate finance. Priority will be given to proposals focused on the thematic areas: supporting direct access to climate finance; and supporting small– scale or pilot adaptation initiatives to build resilience of vulnerable communities.
FSDEA retains high ranking on the Sovereign Wealth Fund Institute Transparency Index
The Fundo Soberano de Angola (FSDEA) has retained a high ranking on the latest Sovereign Wealth Fund Institute (SWFI) Transparency Index ranking for Q2 2017. FSDEA concluded the transition process from the country’s national accounting standards for financial institutions (CONTIF) to International Financial Reporting Standards (IFRS) in 2016. This achievement makes the FSDEA the first Angolan institution to present financial statements in accordance with the rules of international financial and capital markets. Hugo Gonçalves, Member of the Board of Directors of the FSDEA said, “The positive evaluation of FSDEA by SWFI is a testament to its commitment to the highest standards of financial reporting worldwide. This quotation reflects the good understanding that international analysts and large institutional investors have about the domestic, regional and international investment strategy of the Fund.”
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IMF Staff completes staff visit to Gabon
On 19 June 2017, the IMF Executive Board approved an SDR 464.4 million (about $642 million) extended arrangement under the Extended Fund Facility for Gabon, or 215 per cent of Gabon’s IMF quota, in support of Gabon’s medium-term recovery programme. The EFF-supported programme will help Gabon restore macroeconomic stability and lay the basis for inclusive growth. It seeks to attain debt sustainability at the national level and help contribute to restoring and preserving external stability for the Central African Economic and Monetary Union The IMF’s programme aims to restore macroeconomic (CEMAC). The Executive Board’s decision stability to Gabon (CREDIT: INK DROP/SHUTTERSTOCK). has enabled a disbursement of SDR 71.43 million (about $98.8 million). The remaining amount will be phased over the duration of the programme, subject to semi-annual reviews. Segura-Ubiergo, who led the IMF team, said, “Gabon’s near-term economic outlook remains difficult, with overall growth expected to be modest at about one per cent in 2017. Since 2014, the reduction in international oil prices has been associated with a slowdown in economic activity, large declines in oil exports and fiscal revenues, and a deterioration in the balance of payments.”
ADGM AND CMA KENYA AFFIRM FINTECH COLLABORATION
Abu Dhabi Global Market (ADGM), the International Financial Centre in Abu Dhabi, and the Capital Markets Authority (CMA) Kenya signed a Cooperation Agreement which provides a framework for cooperation to support financial innovation in each jurisdiction. The Agreement was signed by Paul Muthaura, Chief Executive, CMA Kenya and Richard Teng, Chief Executive Officer, Financial Services Regulatory Authority (FSRA) of ADGM. The Agreement expands both ADGM and CMA’s FinTech cooperation network to growth markets with enormous potentials and provides a framework for information sharing between the two Authorities. Paul Muthaura said, “We are committed to facilitating innovation in financial services, leveraging Kenya’s positioning in the region as an innovation centre. This is central to the implementation of the Capital Markets 10-year Master Plan which identified fintech as an area in which Kenya could emerge as a centre of excellence.” Richard Teng, CEO, FSRA of the Abu Dhabi Global Market said, “This is our first fintech bridge with an African regulatory counterpart. The African continent is providing a compelling story of how digital technology can be deployed to provide financial services to the unbanked and unserved populations. Kenya is particularly active on that front.”
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NEPAD-IPPF PROPOSES REGIONAL INFORMATION HUB TO STIMULATE INVESTMENT IN AFRICA
The NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF) has advocated the establishment of a regional information hub to advertise bankable projects in Africa. NEPAD-IPPF proposes that each country should have a window linked to the centralised hub as part of an overall objective to unlock bankable investment opportunities in Africa. “It would be both a ‘project hub’ and a ‘help desk’—a centralised IT platform for bankable projects which potential investors can access. Such a hub could be housed by the AfDB to ensure credibility and confidence by both project owners (governments) and potential investors,” Shem Simuyemba, Coordinator for NEPAD-IPPF said at an assessment and programming session to develop a pipeline of bankable infrastructure projects for three years, 2018-2020.
African fruit producers and exporters come together to create “AFRUIBANA”
AFRUIBANA, an association of fruit producers and exporters from Cameroon, the Ivory Coast and Ghana was officially launched in Brussels during a visit b y C a m e r o o n Tr a d e Minister, Luc Magloire Mbarga Atangana, to European institutions on Wednesday, 19 July. As representative of the African, Caribbean and Pacific Group of States (ACP) during the various Councils of Ministers AFRUIBANA’s aims to defend the interests of African fruit farmers addressing the banana (CREDIT: HANNA_PHOTO/SHUTTERSTOCK). industry, the minister was lauded for this initiative, which will allow fruit producers on the continent to combine their efforts with a view to having their voices heard better in international trade. AFRUIBANA is an association established under Cameroonian law and gathers several representatives of producers and exporters from different sub-Saharan countries, notably Assobacam, the Cameroon banana industry association, and OBAMCI, an Ivory Coast organisation of producers and exporters of bananas, pineapples, mangoes and other fruits. AFRUIBANA is an open platform with a mission to defend the interests of African fruit farming.
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spotlight [EGYPT]
IFC Board approves investment in world’s largest solar photovoltaic generation park in Egypt The Board of Executive Directors of IFC, a member of the World Bank Group, approved on 20 July an investment of $635 million that will help construct, operate and maintain up to 11 solar power plants in Egypt. The combined capacity of the plants amount to 500 megawatts and will be one of the largest private foreign direct investments in the country’s power sector in recent years. Part of Egypt’s landmark solar FeedIn Tariff (FIT) programme, the $730 million project in Benban, near Aswan, aims to mobilise private investment to build the world’s largest solar photovoltaic generation park, harnessing the country’s vast solar resources. “This landmark investment demonstrates that when you have the right reform policies, and a government willing to allow greater involvement by the private sector, you can attract investors in every sector, including infrastructure,” said Mouayed Makhlouf, IFC Director for the Middle East and North Africa. “Investments like these are the This will be one of the largest FDIs into the country’s power nucleus for economic growth, sector in recent years (CREDIT: EGD/SHUTTERSTOCK). which is needed in Egypt.”
Report on the state of EU-Egypt relations: engaging on shared priorities The European Union and Egypt have been moving forward engaging on shared priorities under their Association Agreement. As the country is faced with an increasingly complex economic, social, political and security environment, the EU is firmly committed to continue supporting Egypt in addressing current challenges, based on new partnership priorities. This is the conclusion that emerges from the joint report released by the European External Action Service and the European Commission on the partnership between the EU and Egypt for the period from January 2015 to May 2017. The EU focus over the past two years has been on supporting the country’s development across economic, social and political lines in order to improve the future prospects for its people and contribute to the long-term stability and prosperity in the country and The EU has reaffirmed its commitment to Egypt in addressing the region as a whole. challenges (CREDIT: PREHISTORIK/SHUTTERSTOCK).
Fitch: Egypt’s budget, energy price rises show fiscal commitment
Egypt’s new budget and lower electricity and fuel subsidies demonstrate a continued commitment to fiscal consolidation and economic reform, backed by the country’s IMF programme, Fitch Ratings says. Narrowing the fiscal deficit supports Egypt’s sovereign credit profile, but significantly reducing the public debt ratio is a multi-year task. In a statement, the Agency said: “Egypt’s parliament last week passed the state budget for the 2017-18 fiscal year (FY18, starting one July). The government had earlier cut fuel subsidies in a move that will save around EGP 35 billion ($2 billion) compared with FY17, when subsidy spending increased owing to sharp currency depreciation. Fuel subsidy reform is a key element of Egypt’s $12 billion IMF programme. “The government has also followed through on its plan for a fourth round of electricity subsidy reform, lowering the electricity subsidy bill to EGP 30 billion, although it has extended the deadline for phasing out electricity subsidies to 2021 from 2019.”
IMF Executive Board completes first review under the EFF with Egypt
The Executive Board of the International Monetary Fund (IMF) completed the first review of Egypt’s economic reform programme supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review allows the authorities to draw the equivalent of SDR 895.48 million (about $1.25 billion), bringing total disbursements to SDR 2,865.53 million about $4 billion. The three-year EFF arrangement in the amount equivalent to SDR 8.597 billion (about $12 billion at the time of approval, or 422 per cent of quota) was approved by the Executive Board on 11 November 2016 to support the authorities’ economic reform programme.
www.bankerafrica.com
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12
happenings
Taxing times A proposal by the National Treasury could leave expat South Africans with a surprising tax bill
The proposal has been seen as a way to improve struggling state coffers (CREDIT: ENCIKTEPSTUDIO/ SHUTTERSTOCK).
S
outh Africa’s National Treasury has begun the process of repealing an exemption in the South African Income Tax Act, which would now allow the Treasury to tax individuals on their foreign-sourced income whilst working outside of South Africa. Currently the exemption has allowed South African tax residents working in a foreign country for more than 183 days a year to avoid having to pay additional tax—known as ‘top-up tax’—should there be a difference between their
foreign tax liability calculated under that jurisdiction, and the equivalent South African tax liability that they would pay had that income been earned within South Africa. This means that should an individual be earning a higher wage in a foreign country, but paying less tax on it than if they earned the same wage within South Africa, then they are liable to pay the difference between the two rates. Furthermore, expats living in jurisdictions without income tax, such as many Arabian Gulf states, an
individual would still be liable to pay the full tax amount. Determining if an individual is a tax resident of South Africa is somewhat more complicated than the place where they live, and is not as simple as citizenship, domicile or nationality. A person can be deemed ‘ordinarily resident’ if they meet the physical presence requirements and can even be deemed such if they spend more than 183 days a year away from South Africa. Should an individual return regularly throughout the course of a year to South Africa, or they have a permanent home with belongings in South Africa, then they may still be deemed by court to be ‘ordinarily resident’ and thus liable for taxation. Furthermore, an individual may be deemed to be a non-South African tax resident should the country they work in have a tax treaty which may supersede National Treasury rules. As such, avoiding paying tax in South Africa for foreign earned income may not be as simple as just giving up citizenship or nationality as the two are separate from one another. South African Revenue Services spokesperson Sandile Memela was reported in The Citizen as having stated that, “Naturalisation is not required to be subject to tax in South Africa. South Africa taxes persons who are resident for tax purposes on their worldwide income and non-residents on their South African sourced-income, subject to the provisions of the Income Tax Act of 1962.” The proposal by the National Treasury can be seen as a clear attempt to improve state funds by raising more taxes. The South African economy has been struggling through a period of economic turmoil throughout this year spurred by domestic political problems which were noted as one of the leading causes for the country’s recent downgrade to ‘junk’ status by worldwide rating agencies.
www.bankerafrica.com
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13
SBM to list Afreximbank depository receipts SBM Securities has obtained the approval of the Stock Exchange of Mauritius for the listing of Afreximbank’s depositary receipts
S
BM Securities, the stock broking division of SBM Holdings, will act at the sponsoring broker and depository for the listing of Afreximbank’s depositary receipts, which are looking to raise at least $100 million from local and international investors. Kee Chong Li Kwong Wing, Chairman, SBM Group, said, “It is a quadruple first in the world finance and it is a major innovation on the African stock exchange: one, it is the first time for the world that a supranational bank (for example the World Bank and the PTA Bank), is opening its shareholding to the public. Secondly, it is the first time that a supranational institution is issuing depository receipts on an African Stock Exchange. Three, it is therefore the first time that a Mauritian financial institution is acting as depository and is issuing depositary receipts and fourth, it is the first time that the Stock Exchange of Mauritius will be listing depositary receipts.” A depositary receipt is a negotiable security that is issued on the back of existing publicly traded or physical securities from a different country than where it is issued. It allows investors to hold securities in other countries with a much higher degree of ease and without having to open a foreign trading account. The depositary receipt derives its value from that of the underlying shares of the company when issued but behaves independently like any other listed share once they are listed on the stock exchange.
Chairman of SBM Group Kee Chong Li Kwong Wing and Dr Benedict Oramah President of Afreximbank.
They can be freely purchased or sold through exchange where they are listed like any other listed instrument. Dr. Benedict Oramah, President of Afreximbank, said, “Mauritius as a premier financial centre in Africa, has a conducive regulatory framework for this innovative equity offering. On the other hand, SBM possesses the competencies, investor contacts, infrastructure and support capabilities for the issuance of the depositary receipts.” Afreximbank is a supranational financial institution whose purpose is to help facilitate promote and expand intra/ extra-African trade. Originally the Bank was established under the Agreement for the Establishment of the African
Export-Import Bank between 27 states and multilateral institutions but is now aiming in tie to increase the number of participating states from the current 40 to include all 54 sovereign African nations. The Bank is seeking to issue depositary receipts as it looks to strengthen its permanent capital in order to enable it to expand its lending activities across the African continent and narrow the trade finance gap, which is currently estimated at $120 billion per annum. Furthermore, the bank needs to ensure it maintains above its self-imposed Capital Adequacy Ratio limit of 20 per cent to maintain its investment grade rating. K.C Li added that, “It is a privilege that a prestigious institution like the Afreximbank has entrusted us with such an important project. This demonstrates that SBM holds the required competencies to play a leading role in global finance and confirms the position of Mauritius as a financial hub.” “This initiative is an innovation for the financial market,” said K.C Li. “This African ‘Premier’ shall be a model to other countries and financial institutions. Together, Afreximbank and SBM Group are creating opportunities for the reinforcement of trade, investment and development across the African continent and the deepening of Africa’s capital markets.” Depositary receipts will be listed and traded on the SEM (Stock Exchange of Mauritius) as from 4 October 2017.
www.bankerafrica.com
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opinion
14
Top five GDPR priorities facing organisations doing business with EU citizens More than half of companies affected by the European General Data Protection Regulation (GDPR) will not fully comply by the date it comes into force, says Gartner
W
Bart Willemsen, Research Director, Gartner
hen the European General Data Protection Regulation (GDPR) comes into effect on 25 May 2018, its impact will extend beyond the borders of the European Union (EU). It will apply to all companies processing and holding the personal data of EU residents, regardless of the company’s location. Bart Willemsen, Research Director at Gartner said, “The GDPR will affect not only EU-based organisations, but many data controllers and processors around the globe. With the renewed focus on individual data subjects and the threat of fines of up to EUR 20 million or four per cent of annual global turnover for breaching GDPR, organisations have little choice but to re-evaluate measures to safely process personal data.” Despite a lot of recent attention around these regulations, Gartner predicts that, on the date of effectuation, more than half of companies affected by the GDPR will not comply fully with its requirements.
Organisations must focus now on five high-priority changes to ensure compliance when GDPR comes into force:
1. Determine your role under the GDPR
ny organisation that decides A on why and how personal data is processed is essentially a “data controller.” Therefore, the GDPR applies not only to businesses in the EU, but also to all organisations outside the EU that are processing personal data for the offering of goods and services to the EU, or that are monitoring the behaviour of data subjects within the EU. These organisations should appoint a representative to act as a contact point for the data protection authority (DPA) and data subjects.
2. Appoint a data protection officer any organisations will be required M to appoint a data protection officer (DPO) as a result of the GDPR. This is especially important when the organisation is a public body,
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is processing operations requiring regular and systematic monitoring, or has large-scale processing activities. “Large scale” does not necessarily mean hundreds of thousands of data subjects—early drafts of the GDPR mentioned the processing of data on more than 5,000 subjects in any 12-month period.
3. Demonstrate accountability in all processing activities
urpose limitation, data quality and P data relevance should be decided on when starting a new processing activity, but also applied to existing processing activities. This will help to maintain compliance in future personal data processing activities. Organisations must demonstrate accountability and transparency in all decisions regarding personal data processing activities. “Thirdparty service providers (i.e. data processors) must also comply, and this will impact an organisation’s supply, change management and procurement processes,” said Willemsen.” Accountability under the GDPR requires proper data subject consent acquisition and registration. Pre-checked boxes and implied consent will no longer be sufficient. Instead, organisations will be required to implement streamlined techniques to obtain and document consent and consent withdrawal.”
4. Check cross-border data flows
ata transfers to any of the 28 EU D member states will still be allowed, as well as to Norway, Liechtenstein and Iceland. Transfers to any of the other 11 countries the European Commission (EC) has deemed to have an “adequate” level of protection will also be possible. Outside of these areas, organisations should use appropriate safeguards, such as Binding Corporate Rules
15
HIGH-PRIORITY FOCAL POINTS FOLLOWING THE EU GDPR E stablish and maintain an accountability framework Perform impact assessments Review data processing inventory Adjust your data processor/ third-party selection criteria Implement compliant consent mechanisms
EU residing data controllers: Review cloud implementation and cross-border mechanisms
ppoint a data protection officer (DPO) A Position and equip the DPO Connect the DPO with the CISO and security experts
Data controller or processor under GDPR?
Extra-EU controllers: Select appropriate controls, appoint EU representative
PREPARE FOR SUBJECTS’ RIGHTS’ Of access, rectification, erasure, blocking, object To be forgotten Data portability Information Data portability, restriction of processing Data breach notification
Source: Gartner September 2016.
THE GENERAL DATA PROTECTION REGULATION The General Data Protection Regulation (GDPR) is a new regulation which was approved by the EU Parliament after four years of preparation in April 2016. The law is designed to harmonise data privacy laws across Europe, and protect and empower EU citizen’s data privacy. Importantly the law will govern the regulatory environment for international businesses intending to operate within EU. Penalties for non-compliance with the new data protection laws are severe—with fines ranging up to four per cent of worldwide turnover. (BCRs) and standard contractual clauses (i.e., “EU Model Contracts”).
5. Prepare for data subjects exercising their rights
ata subjects have extended rights D under the GDPR. These include the right to be forgotten, the right to data portability and the right to be informed (e.g., in case of a data breach, or to receive an explanation, for example in machine learning systems’ automated decision making). “If a business is not yet prepared to adequately handle data breach
incidents and subjects exercising their rights, now is the time to start implementing additional controls,” Willemsen said.
The challenges and opportunities facing the banking and insurance sectors will form a key focus at the Industry Day on 18 September at the Gartner Symposium/ITxpo in Cape Town. More information can be found at www.gartner.com/events
www.bankerafrica.com
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16
Kenyan trade moves continental In a new report, the future for Kenya looks upbeat with regional integration highlighted as a positive for the East African nation
Mombasa’s port will play a key role in regional trade development (CREDIT: NEKTOFADEEV/SHUTTERSTOCK).
T
he latest Economic Insight: Africa, a quarterly economic forecast of the region commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW) and produced by partner and forecaster Oxford Economics, points to positive forecasts for the trade outlook for the African continent. The report focuses specifically on Kenya, Tanzania, Ethiopia, Nigeria, Ghana, Ivory Coast, South Africa and Angola.
The report argues that commodity prices have had the biggest influence on Africa’s trade by value. With the recovery of some commodity prices this year, the effect has been a net positive for the continent as a whole. Furthermore, intra-African trade has continued to grow in both terms of integration and infrastructure development. The report stated that 41 per cent of Kenya’s exports were to the African continent in 2016, with Europe and
Asia both representing a quarter of total exports. Uganda emerged as the single largest export destination for Kenya, accounting for 11 per cent of exports in 2016. The country has been particularly successful in diversifying its exports and focusing on building up its manufacturing base. As the largest economy in East Africa, Kenya stands to gain the most from a deepening of regional trade and economic
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integration, the report added. Amongst Kenya’s exports, members of the East African Community (EAC), a regional intergovernmental organisation, accounted for a fifth of total exports. The report sees Kenya’s trade with partners on the continent as likely to grow as demand increases and trade links develop and improve. Kenya’s exports consist primarily of raw agricultural products such as tea and flowers. The report argues that the country’s comparative advantage in value addition is, however, limited to regional African peers and that income from these commodities are constrained by factors other than that of the state of world trade. These factors include global commodity prices and domestic weather, which can have a significant adverse effect on production. Despite this though, the country is well positioned to benefit from overall growth region however. “Kenya stands to benefit from stronger growth in the East Africa region as it is well positioned to take advantage of rising demand for manufactured goods,” said Michael Armstrong, ICAEW Regional Director, Middle East, Africa and South Asia. “Furthermore, its location and relatively developed transport infrastructure will allow the country to act as the gateway into the East Africa region.” Regional infrastructure development within the EAC is dependent on goods moving through, meaning that continued plans to improve regional infrastructure will benefit Kenya. The union was noted in the report as the most progressive trade bloc on the African continent with infrastructure collaboration particularly emphasised as being at a level rarely seen. An example of this can be found in the recent completion of the first section of the Standard-Gauge Railway (SGR) which will eventually form the backbone of the $26 billion Lamu Port Southern Sudan-Ethiopia Transport
17
KSh’m 600,000 500,000 400,000 300,000 200,000 100,000 0
99 000 001 002 003 004 005 006 007 008 009 010 2011 012 2013 2014 015 016 2 2 2 2 2 2 2 2 2 2 2 2 2 2
19
Uganda
Tanzania
Rwanda
Other Africa
Other
Source: CBK/ICAEW
(Lapsset) Corridor. This particular project will likely prove to be the backbone of East African trade for the future to come, with Kenya playing a role at the heart of regional integration. In addition, from 31 July this year, a Single Customs Territory (SCT) will take affect across the EAC. The aim of this programme is to improve trade between member countries by electronically linking each of the countries’ custom clearance systems. The report argues that should this be implemented successfully the SCT could significantly stimulate trade in the region by reducing the cost of doing business. A pilot programme has already been run with certain goods at certain entry points, with positive results. The report did, however, highlight two major challenges that the EAC still faces. The first of which is the recent caution the organisation received from the United Nations Economic Commission for Africa (UNECA) over the signing of the Economic Partnership Agreement (EPA) between
the EAC and the European Union (EU). Under the agreement, Kenya could lose the most as it is the only country in the EAC which does not qualify as a least-developed country, meaning it would not receive duty and quota-free access under the EU Everything-But-Arms initiative. Exporters’ and potential exporters’ sentiment will likely be effected by uncertainty in relation to this issue moving forward, the report added. Secondly, non-tariff barriers remain a major concern for EAC member states. In May of this year authorities directed ministries in charge of EAC affairs in member states to resolve non-tariff barriers to trade. Examples of this highlighted in the report included restrictions on Kenyan beef exports to Uganda or the requirement that companies exporting to Tanzania should register, re-label and retest goods certified by other partner states. In total, a monitoring tool identified 19 non-tariff barriers that remain unresolved.
www.bankerafrica.com
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18
Optimism that the rand could strengthen quickly fades Zuma’s continued political survival points to further downward pressure on the rand, says Jameel Ahmad, VP of Market Research at FXTM
A
ny optimism that the South African rand (ZAR) would continue its attempt to strengthen against the USD, appears to have gone out the window— following the news that Jacob Zuma survived another no-confidence vote. The rand was previously showing signs of strengthening on indications that President Zuma would be ousted, but the ZAR quickly lost all gains following the news that he had survived a ‘no confidence’ vote for the eighth time. With traders showing signs of positioning themselves beforehand for a potential Zuma loss, the decision to keep him in power has increased the risk of eliminating rand buyers from the market. At the time of writing, USDZAR has advanced 1.6 per cent since Monday, with the rand declining against all G-10 currencies, including an overwhelming majority of additional currencies across the global markets. Following the news that Parliament has once again voted to offer President Zuma a lifeline, the risks on the rand are pointing towards further downward pressure. This is due to the likelihood that ongoing political risk will continue to dominate the South African headlines. Political turmoil has plagued the nation since the surprise removal of the respected Finance Minister, Pravin Gordhan, back in March. When one combines ongoing political risk, a technical recession and emerging concerns over potential political interference in the
hallowed ground of monetary policy, it creates a picture that sellers will remain in control of the South African rand.
GOLD AND YEN GAIN ON TRUMP WARNING
Both gold and the Japanese yen have shown signs of safe-haven buying from investors, following the overnight warning from US President Trump to North Korea. Donald Trump has been quoted throughout the global media as warning the North Korean regime, that any threat to the United States would be met with “fire and fury”. The South Korean won has also declined by over 0.8 per cent—on the signs of another escalation of political tensions between North Korea and the United States. The reaction to Trump’s overnight comments, clearly shows that all it takes is one “off the cuff” remark to wake markets up, even during the summer season of light market volatility.
TIME TO BUY THE CHINESE YUAN? This one has slipped under the radar somewhat, with most of the spotlight today being focused on the escalating tensions between President Trump and North Korea. The yuan has continued to advance, after reaching a 10-month high against the dollar on Tuesday. It’s been clear in recent weeks, that the People’s Bank of China (PBoC) is protecting the currency from further downside. However, even with China’s
fundamentals improving, the yuan has only advanced approximately three per cent against the dollar this year, whereas some major currencies like the euro and Australian dollar, have moved around 10 per cent. I think the momentum of the yuan is sending a clear signal that the currency will strengthen further over the coming months, and there is room for the yuan to advance another two to three per cent before the end of 2017.
LIMITED REACTION TO OPEC MEETING
The lack of reaction to the OPEC meeting in Abu Dhabi is thought to be linked to the fact that the meeting’s focus was to discuss compliance, rather than deeper production cuts—a message that investors want to hear before they reload purchasing positions in oil. If the theme of the OPEC meeting in the United Arab Emirates (UAE) had been geared towards measures to reduce continued oversupply in the market, rather than compliance, investors would have watched the meeting in Abu Dhabi more closely. The theme of ‘compliance’ is likely to be used to show that the cartel are united in their efforts to stabilise the oil market, in terms of the current production cuts that are taking place. I expect to hear more messages from OPEC in this vein in the coming weeks.
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page 18 Markets 047.indd 18
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16/08/2017 17:32
20
country
focus
Bringing Nigeria back Government policy and commodity recovery has come some way to bringing the Nigeria back on track
N
igeria has been one of the hardest hit economies in Africa by falling commodity prices. Since mid-2014 falling crude oil prices have been responsible for interrupting a decade of uninterrupted economic growth and precipitated a period of recession beginning in the second quarter of 2016. Further economic shocks have followed with foreign exchange shortages, highlighted in previous editions of this magazine, disruption in oil supply and production and security issues further plaguing the West African nation. The Global Competitiveness Report 2016-2017 released by the World Economic Forum, noted that the country fell three places to 127th overall due to two main factors—firstly Nigeria’s weakening macroeconomic environment (down 27 places) and financial sector (down 10 places). The report also took noted of rising government deficits and national savings position.
Overall economic activity contracted in Nigeria for Q1 2017 by 0.6 per cent with the main cause for this contraction being a result of maintenance stoppages reducing oil production. Overall, however, the situation appears to be improving. Although oil prices have not returned to the heights seen in the past, production of oil has increased as the threat from Niger Delta militants has receded. In a recent research note, Moody’s Investors Service noted that the country’s economic growth and US dollar earnings will likely improve gradually throughout 2017, supported by the recovery in oil production and prices. “The current rebound in oil production trending towards two million barrels per day (mbpd) since the last quarter of 2016, if sustained, is providing relief to both economic growth and support the US dollar supply in the economy,” added the report. In addition, the non-oil sector returned to growth in Q1. “Following four quarters of negative growth, the non-oil economy grew by 0.6
per cent (year-on-year), on the back of a rebound in manufacturing and continued strong performance in agriculture. Various indicators suggest an uptick in activity in the second quarter of the year,” said Amine Mati, Senior Resident Representative and Mission Chief for Nigeria at the IMF, at the conclusion of an IMF staff visit in late July.
PRIVATE POSITIVITY
The Nigerian private sector ended Q2 2017 in a positive state, with growth continuing quarter-on-quarter, despite some slowdown. The Stanbic IBTC Bank Nigeria Purchasing Managers’ Index (PMI) fell from its 17-month high of 54.4 in May to 52.9 in June. Although this suggests some growth slowdown, it remains about the 50 point threshold which represents expansion from contraction in business conditions. Ayomide Mejabi, Economist at Stanbic IBTC Bank said, “The persistent improvement in private sector activity in Nigeria this year, as measured by the
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Stanbic IBTC Bank PMI, finally moderated in the month of June. That said, at 52.9, the headline PMI still signals that business conditions continue to improve solidly.” The growth in new orders slowed down, but still remained high, following the trend seen in output. However, new export orders returned to marginal growth in June, following a slight contraction in May, after nearly two years of contraction. “However, despite the relatively more supportive business environment, economic growth is still expected to only rebound moderately as it is becoming evident that some macro rebalancing is underway in Nigeria,” added Mejabi. “This is mainly the result of policy tightness that the monetary authorities have engineered. Unfortunately, in spite of improvements to FX supply, the combination of contracting credit demand and stunted investment spending will probably limit economic growth in the near term.”
FOREIGN EXCHANGE
The issue of foreign exchange shortfalls has also begun to be addressed. In Banker Africa #45 we pointed to the analysis from Fitch which stated that the Nigerian Autonomous Foreign Exchange Rate (NAFEX) mechanism, more commonly known as the ‘Investors’ and Exports’ FX Window’ as boosting the foreign currency
supply and flow of foreign currency liquidity in Nigeria. Since its opening in April, the window has succeeded in bringing in dollars from abroad, attracting over $3 billion which has helped fuel a boom in the stock market. The goal of NAFEX had been to provide investors and exports with a more transparent mechanism to sell their foreign currency to buyers, with hindsight we can see that it has been successful in doing just that. Mati noted that, “The new Investor and Exporter FX window has provided impetus to portfolio inflows, helped increase reserves above $30 billion, and contributed to reducing the parallel market premium.” Mati goes on to state that the preliminary data for H1 2017 indicates significant revenue shortfalls, “The interest-payments to revenue ratio [remains] high (40 per cent at endJune) and projected to increase further under current policies.” Shortfalls in revenue have been an issue for many countries—with problems arising around the shadow economy and tax collection [turn to page 25 to read more about Nigeria’s shadow economy]. Indeed, as a measure of the difficulties that Nigeria has faced with revenue generation can be seen in its ranking in the PwC and World Bank’s Paying Taxes report.
21
Despite the relatively more supportive business environment, economic growth is still expected to only rebound moderately as it is becoming evident that some macro rebalancing is underway in Nigeria. – Ayomide Mejabi, Economist at Stanbic IBTC Bank
cont. on page 23
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22
NIGERIA
by the numbers PRIMARY MARKETS I SHARE IN %
POPULATION
GDP GROWTH 10% 8%
183.6
6%
million
4%
EXPORTS
2% 0%
Source: IMF World Economic Outlook Database (April 2017) – estimated
LONG-TERM TRENDS I 3-year averages 2013-15
2016-18
2019-21
Population (million)
174
189
205
GDP (USD bn)
510
374
434
2,935
1,984
2,121
4.8
0.8
3.6
GDP per capita (USD) GDP growth (%) Fiscal Balance (% of GDP)
-1.3
-2.6
-1.8
Public Debt (% of GDP):
11.8
20.3
22.0
Inflation (%):
8.5
14.6
10.2
Current Account (% of GDP):
0.3
0.7
0.7
External Debt (% of GDP):
1.9
3.7
4.5
Source: FocusEconomics Consensus Forecast Sub-Saharan Africa–August 2017
Other EU-28 11.2% Netherlands 8.9% Spain 8.5% France 5.4% Other 17.8% Other Asia ex-Japan 6.8% India 17% Brazil 8.5% Other SSA 10.3% South Africa 5.6%
100
Projected in 2017
Projected in 2018
Source: Africa Economic Outlook 2017
EASE OF PAYING TAXES IMPORTS
U.S.A. 6.5% Other EU-28 16.3% Netherlands 6.1% Other Asia ex-Japan 11.2% China 25.8% Other 34.1%
ECONOMIC STRUCTURE GDP by Sector I share in %
0.8% 1.9%
Ranked 182 out of 189
% 34.3 total tax rate
GDP by Expenditure I share in %
2007-09 2010-12 2013-15
120 Agriculture
80
2007-09 2010-12 2013-15 Source: PwC Paying Taxes 2017 analysis Net Exports
90
COMPETITIVENESS Investments
60
Manufacturing
60
40
Other Industry
30
Government Consumption
20
Services
0
Private Consumption
0
-30
Source: FocusEconomics Consensus Forecast Sub-Saharan Africa
Ranked 108 for macroeconomic competitive environment
Ranked 26 for market size
out of 138 Source: Global Competitiveness Report 2016-2017/ World Economic Forum
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cont. from page 21
Nigeria ranks 182nd in the report, out of 190 countries examined. FocusEconomics’ noted in their latest Consensus Forecast Sub-Saharan Africa that inflation has fallen for the fifth consecutive month in a row to 16.1 per cent in June, down from 16.1 per cent month-on-month. Although this is something of a success, the number still remains significantly higher than that of the Central Bank’s six to nine per cent target range. The current situation has persisted since the surge in electricity and fuel prices in mid-2016 in combination with a weakening naira. Continued work is necessary to reach the Central Bank’s target.
THE OUTLOOK
The overall outlook for 2017 is for a slow recovery in Nigeria. The African Development Bank, OECD and UN Development Programme African Economic Outlook 2017 points to
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 RANK
BANK
1
Access Bank Nigeria
2
Guaranty Trust Bank Nigeria
3
First Bank of Nigeria -Nigeria
4
Zenith Bank Nigeria
5
Fidelity Bank Nigeria
6
First City Monument Bank Nigeria
7
Sterling Bank
8
United Bank of Africa Nigeria
9
Diamond Bank Nigeria
10
Stanbic IBTC Holdings Nigeria
growth of 2.2 per cent as reforms begin to take hold and policies are put in place to address the macroeconomic challenges and structural imbalances. “Faced with these challenges, the government has started implementing a number of important measures. The Economic Recovery and Growth Plan
23
(ERGP) is driving the diversification strategy, and security in the Niger Delta improved through strengthened engagement,” said Mati. “Acting on an appropriate and coherent set of policies to enhance an economic recovery remains urgent. This includes implementing immediately specific
INFLATION I CONSUMER PRICE INDEX 3
20
2
15
%
%
1
10
0
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
5
Month-on-month (left scale) Year-on-year (right scale) Note: Year-on-year and month-on-month variation of consumer price index in %. Source: National Bureau of Statistics (NBS) and FocusEconomics calculations.
NIGERIA TECHNICAL COOPERATION FUND CELEBRATES FIRST TENYEAR LIFE CYCLE In early August at an event in Abuja the Directorate of Technical Cooperation in Africa (DTCA) of Nigeria’s Ministry of Foreign Affairs and the African Development Bank (AfDB) celebrated the completion of the first life cycle of the Nigeria Technical Co-operation Fund (NTCF). The NTCF is a $25 million fund co-managed by both the DTCA and AfDB with the purpose of providing grants for development projects and programmes to support socio-economic and technological development of Regional Member Countries (RMCs), in addition to promoting regional cooperation and economic integration across the continent. The Fund became operational on 5 April 2004 and has had a total of 123 project proposals considered as at June 2014 with 69 approved, and 24 fully completed. Forty-five are at various stages of implementation and therefore classified as ongoing. A five-year administrative extension of the Fund has been obtained to ensure completion of the projects. All 54 African Countries have benefited directly or indirectly from NTCF interventions. President of the AfDB Group, Akinwumi Adesina said, “This partnership between Africa’s largest economy and politically most influential country with Africa’s premier financial institution is a natural one that is sharply focused on reducing barriers on the continent. We look forward to a successful replenishment of the NTCF and also to better development outcomes for the people of Africa.” cont. overleaf
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24
cont. from page 23
priorities that will help achieve the goals of the ERGP.” The ERGP focuses on five areas: improving macroeconomic stability; improving competitiveness; economic growth and diversification; fostering social inclusion; and governance and security. Some of these policies have already begun to take effect, whilst ongoing security issues continue to affect the country with conflict continuing with Boko Haram to the north east. “In the near term, a stronger push for front-loaded fiscal consolidation through a sustainable increase in non-oil revenues would be needed to create space for infrastructure spending, social protection, and private sector credit,” added Mati. “This should be simultaneously accompanied by a monetary policy that avoids direct financing of the government and is kept sufficiently tight, a unified and market-based exchange rate, and rapid implementation of structural reforms. Pursuing these policies would help reduce macroeconomic vulnerabilities and create an environment for a diversified privatesector led economy.” Overall, the economy should begin to improve this year with improvements in oil production and capital spending helping this outlook. However, some analysts, such in FocusEconomics’ latest report, have raised questions as to whether measures put forward in the ERGP will indeed see the light of day. Furthermore, additional challenges still remain with foreign exchange distortions, the parallel market, and private sector liquidity problems. In addition, overall growth will likely not be enough to combat the risks inherent with unemployment and poverty, with risks to economic recovery and stability remaining elevated. Delays in implementation of policies such as the ERGP, shortfalls in oil and agricultural production, external market conditions and fragile banking sector conditions all represent potential downfalls for Nigeria’s delicate recovery.
PURCHASING MANAGERS’ INDEX 60
55
50
45 Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Ddc-16
Mar-17
Jun-17
Note: Purchasing Managers’ Index. Reading above 50 indicate an expansion in business conditions while readings below 50 point to a contraction. Source: Stanbic IBTC Bank Nigeria and IHS Markit.
MACROECONOMIC INDICATORS 2015
2016(e)
2017(p)
2018(p)
Real GDP growth
2.8
-1.5
2.2
4.8
Real GDP per capita growth
0.1
-4.2
-0.5
2.1
CPI inflation
9.1
15.7
14.3
12.4
Budget balance % GDP
-1.3
-2.3
-2.2
-2.0
Current account % GDP
-3.1
-1.8
-0.7
-2.0
Source: African Economic Outlook (AEO)/data from domestic authorities; estimates (e) and projections (p) based on AEO calculations.
NIGERIA RAISES $300 MILLION FROM FIRST DIASPORA BOND The Government of Nigeria issued its first bond targeted at the large Nigerian diaspora market. The bond succeeded in raising $300 million at a coupon rate of 5.625 per cent for a tenor of five years. The raise was part of efforts by the Government to get citizens living abroad to help provide additional finance in the face of large budgetary deficits. The bond was pitched to Nigerian citizens as a way to help fund development of the country. The Director General of the Debt Management Office (DMO), Dr. Abraham Nwankwo, was quoted by This Day as saying “The diaspora bond has opened a new source of financing for the Federal Government of Nigeria for funding projects for the development of the country. “This new window further enhances funding liquidity and flexibility of the Nigerian economy, which are necessary characteristics as the country gathers momentum towards the attainment of advanced economy status.”
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country
focus [NIGERIA]
25
The shadow economy is a significant part of Nigeria’s overall GDP (CREDIT: ALEX LINCH/SHUTTERSTOCK).
The retreating shadows
Nigeria’s shadow economy is due to shrink by 2025, according to a new report from the ACCA
T
he ‘shadow economy’, also known as the parallel or informal economy, is set to decline across the globe, including in Nigeria, according to a new report from the Association of Chartered Certified Accountants. The report, entitled Emerging from the shadows: The shadow economy to 2025, argues that the shadow economy in Nigeria, which was measured at
48.37 per cent of GDP in 2016, an approximate NGN 49.68 trillion, is set to decline to 46.11 per cent by 2025. In comparison the global average is expected to fall from 22.5 per cent to 21.39 per cent of GDP over the same period. “The prevalence of shadow economy activity creates considerable practical and ethical issues for both business and government,” Jamil Ampomah, Director, Sub Saharan Africa, ACCA, said.
“The fall in the shadow economy’s overall share of Nigeria’s GDP is a very positive sign that efforts to curb its impact have been implemented in recent years. But there‘s still a long way to go,” said Ampomah. “Despite foreign capital investment in local economies increasing and a partial reduction in unemployment, poverty is declining slowly showcasing the need for more effective strategies to tackle it.”
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26
country
focus [NIGERIA]
The key factors that are shaping the shadow economy globally were found to vary broadly from country to country. The report did note that in all countries where the shadow economy is neither declining nor stagnating shared the similar characteristics of an emerging market, with many exhibiting room for improvement in institutional and governance quality. Countries which are able to make the biggest strides to improving institutional frameworks are likely to see the largest declines in shadow economy activity leading up to 2025, the report concluded, whereas countries with more limited institutional frameworks will suffer the reverse. “Our research estimates that the current factors that will determine Nigeria’s shadow economy are: corruption control, GDP per capita and bureaucratic quality. There are steps that government, business and society can take to curtail the shadow economy, ensuring that all workers and businesses retain the rights associated with the legal trade of goods and services,” added Ampomah. In terms of factors that will shape the shadow economy up to 2025, a wide range across six categories were identified—economic, sociodemographic, socio-environmental, governance, business and science and technology. Economic factors are expected to naturally have a major impact on development of the shadow economy up to 2025. The report noted that survey respondents saw business related factors related to globalisation, such as shorter business cycles, as driving behaviour in the formal sector and the pursuit of increasing enterprise scale. Socio-demographic factors were found to either be a potential driving force for growth in the shadow economy, or the reverse. The highest-rated growth factor was that of rising unemployment at 94 per cent, with experts consulted for the report suggesting that this has a direct impact on increasing poverty.
OECD definition of informal employment Employment engaged in the production of legal goods and services where one or more of the legal requirements usually associated with employment (such as registration for social security, paying taxes or complying with labour regulations) are not met. Core reasons for engaging in the shadow economy To avoid payment of income, value added or other taxes. To avoid payment of social security contributions. To avoid having to meet certain legal labour market standards, such as minimum wages, maximum working hours, and safety standards. To avoid complying with certain administrative procedures, such as completing statistical questionnaires or other administrative forms. Credit: Schneider, F., Buehn, A. and Montenegro, C.E. (2010), Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007.
Meanwhile, socio-environmental factors, such as increasing levels of corruption, low risk of detention and the lack of a ‘guilty conscience’ were perceived as some of the main societal and environmental factors that can create an environment in which shadow economy activity could thrive. In tandem with this, governance factors, for instance complex regulation which adds burden to people looking to join the formal economy, is also a significant factor of the shadow economy. The survey found that improving both economic governance and public sector services was seen as having the biggest impact in decreasing the informal sector, however. Finally, science and technology factors were listed by the report as having a degree of uncertainty related to them as to the impact that they might have on the shadow economy. Technological advances were seen as both having the potential to enable greater monitoring and control whilst also allowing people and businesses additional ways in which act outside of
Top 3 factors determining Nigerian shadow economy 1. Corruption control 2. GDP per capita 3. Bureaucratic quality
the system and increase the informal economy. Time will likely tell as to whether these factors are a net positive or negative overall. Faye Chua, Head of Business Insights at ACCA, said, “The shadow economy presents an enormous challenge for society and a huge potential opportunity for the profession to play an active role across the entire value chain from measurement and monitoring through to helping shadow firms and individuals manage their financial affairs and possibly make the transition from informal to formal. “Effective management of the shadow economy requires action at all levels—government, cities, local communities and individuals.”
Forecast of the size of the shadow economy (%GDP) COUNTRY
2011
2016
2017
2020
2025
PERIOD AVERAGE (2011-2025)
Nigeria
50.73
43.37
47.7
46.99
46.11
47.93
Credit: Emerging from the shadows: The shadow economy to 2025/ACCA research
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in
depth
28
Bringing the unbanked on board Lekan Sanusi, Managing Director, Guaranty Trust Bank (Ghana) Limited said that the bank is poised to launch a series of applications and technologies, to bring Ghana’s unbanked to the table
W
hat has been GTBank’s strategy in trying to compete in terms of fintech innovation? The foundation of GTBank is to delight our customers. To be the best in customer service, one of the tools we recognised very early is the use of information technology. We believe information technology is a business enabler; it is something we can use to deliver convenient and delightful service to our customers. It will interest you to note that in the market here in Ghana, we were the first to introduce slip-free banking. With slip-free banking, the customer does not need to complete a deposit slip; they only need to give the cash to the teller who will issue a receipt to the customer–that took a lot of time off the process for depositors. Also, if a customer wants to withdraw money from their account, they only need to appear before the teller and then identify themselves, meaning that they do not need to complete a slip to withdraw money from their account. We were the first bank to do this. At every point in our development process, a consistent question is asking ourselves how we can continue to use technology as an enabler and push for customer service.
by developing myghpay.com, which presents the bank as an aggregator. It is a platform where merchants, and I mean service providers, are listed, and where customers can go to make payments. A platform like this would usually have been the concern of fintech companies, but we, as a bank, gained the approval of the central bank and now have a payment platform for Ghana. We see technology as a tool and as an enabler, and we believe that innovation will continue to be the name of the game.
How important has mobile banking been to the growth of GTBank? Lekan Sanusi
After we introduced automated teller machines, we did internet banking– which is now very common. Then we introduced a USSD banking service that allows the customer, using their phone, to do many banking transactions outside of the banking hall. To use this service, the customer dials *737# on the mobile phone and can choose transactions from a menu on the phone. Recently, we acted disruptively and dared to enter into a fintech market
We need to recognise the fact that our lives as individuals are changing, particularly for those who are living in the cities. We believe mobile banking will allow customers to do banking at their own convenience. We have adopted that as part of the core of our own approach and, for that reason, we always develop and innovate around banking on the go. People want to do a lot of things on the go; they want to transfer funds, pay for utilities e.g. satellite TV service, electricity, water etc., but time is not available for them to enter into any banking hall, and so availability of mobile banking services makes the difference.
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in
depth
For our internet banking, of course, you require an internet service to use it, but because people are on the move and they also have access to internet, it means they can do a lot. Not everybody has access to internet service all the time and not everyone has sophisticated devices to access internet banking, so we introduced the USSD *737#, which you can even use on a features phone.
Are there any specific technological innovations that you are planning to implement in the next couple of years? I can say without any fear of contradiction that there are no less than five projects that we would be pushing out in the next few months. Mobile money has become a very important part of our lives in Ghana, but people just keep money in their mobile wallet, and then when they need money, they approach an agent and they convert their money into cash. We are developing a payment platform, where rather than customers using bank account balances to make payments, they can just make payments with their wallet, and do not have to use a card. That is one project that is currently on the front burner. We are also developing an application, where customers can book airline tickets at an ATM, and be able to also pay, right at the ATM and print a receipt that will represent an airline ticket. I can go on and on and on about these things that are on the table. They will all take off in the next few months. The frontier for convenience has no limit, so people can enjoy what they want and desire at any point in time they need it.
What role has technology played in on-boarding the unbanked? Ghana has a population of about 28 million, phone penetration is about 128
per cent, and there was a subscriber base of over 35 million by December 2016. This is because some people carry more than one line. The number of people with bank accounts is about eight million. That means there is still a large number of people that still do not hold bank accounts, meanwhile telecommunications companies, through mobile money have been able to access the unbanked. There are limitations to what people can do with mobile wallets. There are many things you can do with a bank account that you cannot do with a wallet. We have already developed a strategy through which we can link those people with mobile wallets to the banking world. We have done this through wallet to bank integration, which enables people to move money flawlessly between their mobile wallet and their bank accounts.
29
A lot of people are currently unbanked, not because they do not want to have a bank account, but because they do not have the time, or maybe they do not have the courage to enter a banking hall. We therefore got approval from the Bank of Ghana to introduce what we call an instant account. This enables you to go on your mobile phone, dial *737#, pick the option to open an account and once you do that and provide some basic details, an account number is generated for you immediately. So, in essence, you have a bank account opened just because you have a telephone. For a lot of our rural areas, the telecoms companies have been able to access mobile wallet customers, and most individuals in rural areas have mobile phones, so if we give them access to mobile wallet integration, then they can move money into their bank account. We will launch Instant Account very soon.
What is your personal management style? “In the last four years, we have won about 21 awards; this is the recognition we have earned in the market place. This would not have been possible if we did not have a formidable team. So, in terms of management style, I see myself as a leader, not a boss. What does this mean? It means I am just the first of the equals. In that sense, I know that my strength as a leader lies in the strength of my team, and a leader can only achieve as much as his team are able to give him in terms of support. The first thing you will realise when you come to my office is that I operate an open-door policy. I do not shut my door, and that is a way of telling my team that I am available for discussion, and they are welcome to walk in and give me ideas and suggestions, that can move the bank forward. One of my principles is to surround myself with very intelligent people. A leader should never be scared of doing that. You can benefit a lot from highly qualified and intelligent people. In the last couple of years, we have been recruiting young and talented first and second-degree holders, to come into the bank via entry level jobs and then we train them. Finally, I lead by example, and when I say I lead by example, I ensure I have very sound knowledge, particularly in the area of Information Technology, because if you want to continue to do well in the market as a leader, you must be very knowledgeable. I make sure I roll up my sleeves and actually work with my people. I step down from my high horse and come to the shop floor. I challenge my employees to create value for the stakeholders of the organisation. I am just a leader, a first among equals and I create value through my team.�
- Lekan Sanusi, Managing Director, Guaranty Trust Bank
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case
study
30
Keeping it in the Family Banker Africa sat down with Dr. David Thuku, MD & CEO, Family Bank to discuss the Bank’s vision moving forward
Has Family Bank faced any challenges in its transformation from a building society to full banking institution?
David Thuku
W
hat is your strategic vision for Family Bank?
The genesis of Family Bank was spurred by the need to make financial services accessible to the then unbanked populace and help transform their lives in a positive way. We have remained true to this vision of leading in the socio-economic transformation of ordinary citizens.
Driven by this vision to be the financial institution that leads in the positive transformation of people’s lives in Africa, we have set our immediate aspiration to the transformation of Family Bank to Tier 1 status in the medium-term horizon. The transformation is anchored on customer centric initiatives optimising our 93-branch network and diverse alternative banking channels driven by our team of professional staff.
Our journey from a humble building society in 1984 to the current mid-tier lender position has been characterised by ups and downs. The initial challenges were primarily around acceptance of the building society in the market at a time when Kenya had just witnessed a wave of collapsed building societies in the 1980s. Resilience as a signature characteristic got anchored within the DNA of Family Bank from its formative years. After overcoming the initial brand recognition challenges, the small building society eventually converted to a commercial bank in 2007. The growth of the Bank required a complete overhaul of the operating policies and procedures, acquisition of a new core banking system and a complete realignment and up-skilling of our human capital. The bank ventured into new customer segments as it kept growing in scale and expertise. Consistently delivering on our promise to customers has enabled us to weather the storms that have come along our journey of growth. From the tiny office we started from, the bank has grown in leaps and
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case
study
bounds over the last thirty-three years. We now have a distribution network of 93 branches; over 200 ATMs and 4000 agents located throughout the country. From the simple products offered by the initial three employees, the more than 1500 employees of the Bank now offer a complex suite of financial services to answer a wide range of customer needs through the above channels. The tiny Nairobi office is also no more and in its place, is the bank’s fully owned ultra-modern headquarters at the Family Bank Towers—Nairobi.
How has the Bank adapted to the interest rate cap on lending initiated last year by the Central Bank of Kenya? The Banking (Amendment) Act (2016), which was gazetted on 31 August 2016, caps interest rates charged on loans at no more than four per cent of a base rate prescribed by the Central Bank of Kenya while interest earning accounts attract interest rates of no less than 70 per cent of the said base rate. As a bank operating in Kenya we supported the spirit of the law and adjusted our interest rates, making immediate changes to our loans and interest bearing deposits accounts. There were immediate consequences attendant to the implementation of the law for our business, granted that the bigger proportion of our loan portfolio was to the higher risk customer segments where risk based pricing was now not possible. In this regard, we have had to adjust our business model and recalibrate our risk acceptance thresholds in alignment with new normal within the banking ecosystem in Kenya. We have also had to expand our revenue generation capabilities within the non-funded arena as well as
the alternative banking channels space. Our digital transformation strategy complements this strategic realignment.
How has Family Bank aligned itself with the mobile technology driven nature of banking today? Family Bank pioneered mobile banking in the Kenyan market in 2012 with our popular PesaPap signature brand. Since then the Bank has been enhancing its mobile offerings through strategic partnerships and adding new services to ensure that we consistently remain ahead of the curve in offering convenience and ease for our customers. In May 2016, for example, we partnered with Visa International to be the first bank in Africa to launch a mobile based payment platform dubbed mVisa. The revolutionary product allows customers to directly pay for goods and services (either face to face or remotely) from their accounts to the merchants’ bank account. They can also send or receive funds from other Visa account holders globally, besides withdrawing and depositing the same to and from their accounts at mVisa agents’ outlets. A key difference between merchant cards and mVisa is that in the latter, the transactions are initiated by the customer, who also enters all the necessary details, and hence considerably reducing the likelihood of fraud. Indeed, we have kept pace with the desire by our customers to make the mobile phone their default medium of interaction with their day to day activities. Our customers can now do virtually everything using our mobile offering including paying for medical bills, fuel, hospital insurance, rent, school fees, payment of debts, deposits to their account or withdrawals, payment of tax, etc.
31
What does the future hold for Family Bank? The future is bright for Family Bank. Our business is modelled around the customer and this gives us the confidence to face the future with a strong sense of purpose and determination. Like a true family, our overt commitment to our customers is aptly captured by our tagline—“With you for Life”. We are currently in the middle of a transformation programme geared to scale up our operations whilst adjusting our customer engagement model and strategy in alignment with the ever-changing market environment. Our human capital remains our biggest asset and we continue to make significant investment in them to ensure that Family Bank remains ahead of the curve in all engagements with our customers.
How has Family Bank positioned itself to service the SME segment? The SME segment is the engine of economic growth in Kenya and the biggest source of employment. It is therefore our most strategic customer segment as a bank and over the years we have perfected our engagement model with the segment. We have built capacity to tailor make solutions to customers in this segment through our highly skilled relationship managers and other officers working in this segment. We travel the journey with customers in this segment and over time have built powerful testimonies of customers we started with from very humble beginning and we have walked together to their current multi-million dollar businesses. SME is our forte as a bank.”
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sector
focus [ISLAMIC FINANCE]
32
Positive growth for African Sukuk Bashar Al Natoor, Global Head of Islamic Finance, Fitch Ratings lays out the future for African Sukuk
M
any African countries are working to develop their legislative and regulatory frameworks to establish Islamic finance and Sukuk as a sustainable funding alternative. With Africa’s demand for infrastructure financing solutions and its significant Muslim population, such an opportunity might be well received. Islamic finance is already present in more than 20 African countries, with Sudan having a fully-fledged 100 per cent Islamic financial system. However, the size of the Islamic finance industry in Africa is still small in relation to the industry as a whole. For example, Ivory Coast, Senegal and Togo listed Sukuk Islamic bonds worth 766 billion CFA francs ($1.28 billion) on the West Africa bourse in October 2016. Recent activity includes two bonds that are Senegalese, which raised 300 billion CFA francs in 2014 and 2016. Ivory Coast raised 310 billion CFA francs in issues in 2015 and 2016, while Togo raised 156 billion CFA francs in 2016. In comparison, Sukuk total issuance was $21.74 billion in 1H16 across the Gulf Cooperation Council, Malaysia, Indonesia, Turkey, Singapore and Pakistan. A notable development in North African Islamic banking was in June
Bashar Al Natoor
this year when Morocco’s central bank granted its first licences to Islamic banks, referred to as ‘participation banks’. This will likely provide a modest stimulus to deposit growth in the country. Fitch-rated banks indicate that the ability to offer Islamic banking products could expand their deposit bases by five to 10 per cent. The ability to grow the deposit base is positive for Morocco’s economic development because deposits represent about 70 per cent of banking sector funding.
We expect growth of ‘participation banks’ to be high initially, as we saw following the introduction of Islamic banking in Turkey and Indonesia. The ability to access Islamic products will ensure that customers have access to a more comprehensive range of services. Customers who have avoided transacting with conventional banks for Shari’ah-related reasons can now move into the formal banking sector.
FACTORS BEHIND SLOWER GROWTH IN AFRICA
Africa is less developed in its Islamic financial system for two main reasons. The first is the complexities of Sukuk and the second is the emerging capital market infrastructure of African countries. Both factors pose significant challenges for Sukuk in general, particularly in establishing a legal structure and legislation that is acceptable to governments, investors and Shari’ah boards. Also, structuring Sukuk compared to issuing a traditional Eurobond remains a relatively complex and time consuming process. Two main examples of these Sukuk complexity challenges are tax neutrality for Sukuk and the ability to establish a special purpose vehicle (SPV) that acts as a single issuer for the Sukuk. Although this is not Africa-specific, taxation is often challenging for Sukuk due to their asset-backed/based nature. What this means is several asset transfers for a Sukuk transaction, creating a dense tax load for issuers when there is not special Sukuk legislation in place. Regulations often need to be amended to provide some sort of exemption to taxable gains on the transfer of assets and tax on rental income earned by a Sukuk issuing SPV. This is also true for withholding taxes linked to the transfer of underlying assets in Sukuk transactions.
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Islamic Finance At Fitch Ratings, we have been providing independent and objective credit ratings to the Islamic Finance market for over a decade. With a strong track record in Islamic Finance, we rate more Islamic banks than any other global credit rating agency. We currently rate 95 outstanding sector Islamic Finance instruments worldwide and 31 Islamic Finance based issuers.
focus [ISLAMIC FINANCE]
Fitch’s Islamic Finance Group coordinates all Islamic Finance activities and expertise across the Sovereign, Financial Institutions, Corporates, Structured Finance, Infrastructure, and Insurance teams. In addition to being involved in the rating process of Islamic Finance instruments, the group monitors and reports on this rapidly growing sector through specialised research and commentary, as well as criteria development. The Islamic Finance team spans various continents and time zones and brings a combination of local knowledge and a strategic global perspective to this evolving sector.
33
Fitch Ratings’ Islamic Finance Coverage EUROPE
ASIA
2 Islamic Finance Based Issuers 11 Sukuk Issues $7,910,000 Volume of Sukuk Issuance (USD 000s) 6 Sukuk Programmes/SPVs
5 Islamic Finance Based Issuers 36 Sukuk Issues $17,629,980 Volume of Sukuk Issuance (USD 000’s) 8 Sukuk Programmes/SPVs
NORTH AMERICA 1 Sukuk Issue Volume of Sukuk $500,000 Issuance (USD 000’s) 1 Sukuk Programme/SPV
MIDDLE EAST AFRICA 1 Sukuk Issue Volume of Sukuk $500,000 Issuance (USD 000’s) 1 Sukuk Programme/SPV
Islamic Finance Based Issuers by Sector
Volume of Sukuk Issuance by Sector
24 Islamic Finance Based Issuers 48 Sukuk Issues $48,071,023 Volume of Sukuk Issuance (USD 000’s) 26 Sukuk Programmes/SPVs
Islamic Finance Based Issuers by Region
Source: Fitch Ratings Volume of Sukuk Issuance by Region
(USD 000’s)
7% As an example, we have previously interlinked, as many issuances are The time needed<1% to tackle these <1% 26% 3% 16% 2 Issuers 24% $19,027,928 1 Issuers discussed possible VAT implementation 58% denominated in the currency of the obstacles will in turn lead to a $42,956,090 7% in the GCC as soon as 2018. market in which they are issued. longer time frame of Islamic finance In most African countries, there Sub-Saharan Africa advancement implementation and potentially higher are no specific comprehensive Sukuk Africa has seen success in issuing costs in relation to more conventional 64% 11% 77% and West laws, though some initiatives have now Sukuk in Sub Saharan Africa, forms of funding until a standardised 90% 17% <1% materialised. One28example is South Africa in particular in the West African framework is established. However, Issuers Africa $60,000 $12,566,984 Asia Corporates Africa, which has introduced Islamic CFA franc (XOF), which minimises several important trends could Europe Financial Institutions compliant financial structures with Insurance exposure to FX risk for domestic provide Middle Eastthe necessary impetus for America further amendments to the TaxationSovereign/Supranational issuers and investors. The continuation theNorth development of Islamic finance Act to widen the definition of Sukuk. of Sukuk activity is a positive in Africa. This includes growing Data as of May 2017 This comes following the issuance of its development that allows Sukuk growth government support for Islamic sovereign Sukuk during 2014. to widen and foster greater acceptance finance, increasing acceptance of Regarding the second theme of the of this instrument globally. Sukuk and Islamic finance more nature of Africa burgeoning capital With global financial reform, we broadly and existing large investment markets, there are encouraging signs. have seen the transformation of banks’ and financing requirements in Africa. However, the development is still modest willingness and ability to lend. This, Furthermore, Islamic finance relative to their potential and compared combined with recent events and could enable African sovereigns to to more developed countries. There are uncertainties globally (such as interest broaden their investor base while numerous limitations and challenges rates increase and appetite of investors providing some diversification away in developing bonds and Sukuk alike. to emerging markets), has highlighted from traditional Eurobond investors However, the regional/local currency the limitations of heavily relying on and towards regional/local market Sukuk market is an area where we have foreign investments alone and regional participants. As African governments seen increased Sukuk activity. and local currency could make this tap the Islamic finance market, it The choices in issuance are usually complex process easier. is anticipated that other issuers domestic versus international and such as state-owned companies and the currency denomination of their African banks could, in time, benefit CONCLUSION Sukuk (or bonds) are local versus from this additional source Challenges lie ahead for the African Sukuk foreign. These two features are often of funding. market despite continued momentum.
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sector
focus [ISLAMIC BANKING]
34
Khaled Al-Aboodi
Islamic finance and the future
Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD) outlines the organisationâ&#x20AC;&#x2122;s vision for the rest of the year
I
CD has been incredibly busy. What would you highlight as the moves that you are most excited about? A major milestone in our operation in the year 2016 was the conversion of traditional lunar Hijri as our financial year to solar Hijri year. The Board of Directors of the ICD and General Assembly recommended and approved to adopt the same financial year as the IsDB. Our impact on private sector development stretched over a wide range of sectors reflecting our responsiveness to the needs of the market, as well as the corporationâ&#x20AC;&#x2122;s strategic priorities and goals.
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sector
focus [ISLAMIC BANKING]
In order to conform to our channels strategy, we have approved about $462 million of investment, or nearly 56 per cent of our total approvals in 2016 in the financial sector. Additionally, the majority of the ICD’s new project approvals in the corporate sector were concentrated in high-impact sectors such as industry and mining, energy, and infrastructure. The ICD’s asset management activities also maintained a growth trajectory, with $115 million of approvals last year, increasing total assets under management to $866 million across the globe. Moreover, in 2016, the ICD has signed 14 advisory mandates and six memoranda of understanding (MoU) across various member countries to materialise its continuous support to the development of member countries, through advisory, building capacity, technical assistance and partnership activities.
ICD has always made a point to help develop Islamic finance out of its traditional markets. Tell me about the moves you’ve made on that front in 2017. ICD fund projects that are aimed at creating competition, entrepreneurship, employment opportunities and export potential. We also bring additional resources to projects, encouraging the development of Islamic finance, attracting co-financiers and advising governments and private sector groups on how to establish, develop and modernise private enterprises and capital markets. We advise on best management practises and enhancing the role of the market economy. We always make interventions in member countries that are appropriate to their stage of development. In less developed member countries, we focus on building the basics of competitiveness and improving the regulatory environment. However, in better-developed countries, we focus
on enhancing private sector markets by increasing business sophistication.
Which market do you think Islamic finance has the most untapped potential? Even in countries where Islamic banking is relatively strong, it usually still accounts for a minority of the overall market. Other than places like
Many of them are expected to be among the fastestgrowing economies in the world in the next few years, including the likes of Côte d’Ivoire, Niger and Yemen. – Khaled Al-Aboodi, CEO, ICD –
Sudan, and windows—where all banks are Shari’ah compliant—it is only in Saudi Arabia where Shari’ah-compliant banks hold a majority market share, with 51 per cent all the other countries are much less. Of course, the Islamic finance industry extends beyond banking to encompass products such as Shari’ahcomplaint insurance (Takaful) and Islamic bonds (Sukuk). However, banking remains by far the most important segment. According to ICD Thomson Reuters, total Islamic banking assets were $1.45 trillion in 2015. There is clearly plenty of scope for further growth. Two billion adults do
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not have a bank account and millions of small businesses do not have access to the financing they need. Many of these unbanked people and businesses are obvious targets for the Islamic finance industry as they are in countries with large Muslim populations, running in a line from Morocco in the west, through parts of Africa and the Middle East and into south and south-east Asia. Many of them are expected to be among the fastest-growing economies in the world in the next few years, including the likes of Côte d’Ivoire, Niger and Yemen. There have also been interesting opportunities in western markets. The UK and Luxembourg governments issued sovereign Sukuk and the following year KT Bank was set up in Germany as the first Islamic bank in the Euro zone.
You’ve also been working to develop Islamic microfinance. What do you find is so important about microfinance for the future of Islamic finance? ICD launched the microfinance programme (MFP) to serve a new segment of the population and the market, which are the micro enterprises, low income and un-bankable people who are in need of a wide range of Shari’ahcompliant financial services. The aim is to encourage the involvement of the private sector in Islamic microfinance industry by encouraging the private sector actors to partner with ICD to establish new Islamic microfinance institutions/entities on sharing bases. ICD can inject equity growth capital and provide line of finance (LOF) to those existing institutions with high potential to grow and diversify their products. We also believe that ICD can help shape the Islamic microfinance environment & institutional capabilities to maximise the outreach to the target clients through providing advisory services in different areas. cont. on page 36
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cont. from page 35
You’ve made moves to ensure that Islamic finance is working more with SMEs. Do you think that the Islamic finance world doesn’t work enough with SMEs, and why? SMEs are vital to the economy, driving economic growth, job creation and reducing poverty, so giving the country’s entrepreneurs improved access to finance is vital. Line of finance has proven to be a very effective tool for development with higher multiplier effect. It has direct and indirect benefits with a diverse set of stakeholders such as SMEs, microentrepreneurs, key sector corporates etc. This tool is particularly important for those economies with low levels of Islamic finance and poor access to affordable financing. Last year we increased our approval figures for LOF by committing 14 new projects with a gross value of nearly $400 million. Our LOF approvals included one regional project for Sub Saharan Africa and 13 country-level facilities.
What countries do you expect to issue their first Sovereign Sukuk in the coming years? Last year we began extending products and services, which we offer to new member countries. This includes some of our schemes as well as our Sukuk advisory services plus our finance deal and privatisation project structuring. In 2016, ICD signed four new Sukuk mandates in four different member countries, either as a debut or as second tranche and closed the Jordan Sovereign Sukuk (mandated in 2015). Other member countries might follow the steps after the success stories in Cote d’Ivoire, Senegal, Togo, Suriname and Jordan. Morocco is considering many possibilities and do not exclude the issuance of sovereign Sukuk.
Besides what we have mentioned, what are the main challenges facing the development of Islamic finance? Industry challenges vary by country and by intensity, but in general, most jurisdictions are facing problems due to a number of fairly similar factors. For example, just to name a few, the lack of skilled human capital and well-developed capital markets, the absence of financial integration both regionally and internationally, the poor capitalisation of Islamic financial institutions, the shortage of liquidity and cash management tools and the poor public awareness of Islamic finance products are all factors impeding Islamic finance growth. Seeing that ICD is a multilateral developmental financial institution, some of these challenges are inadvertently ours as well. The lack of financial intermediation facilities is what distinguishes poor countries from their richer counterparts. To this end, ICD is enhancing economic development by providing a variety of Islamic financial services and products throughout its member countries. We have several academies in the pipeline designed to enhance knowledge of this fastgrowing industry. The complex regional and international regulatory, economic and political context, and the growing need for scalable interventions to achieve meaningful developmental impact, requires broad-based co-operative efforts to ensure success and sustainability. ICD has been active in reaching out to governments and institutions, and devising new ways for cooperation and collaboration.
How do you see the state of the Takaful landscape? Islamic banks, Ijarah, Takaful and investment companies play a pivotal
role, creating a multiplier effect in the socio-economic development of member countries. Establishing alternative modes and channels of Islamic finance in member countries helps to meet the growing demand for affordable finance among retail companies and other SMEs. ICD actively explored equity investment options in various member countries with larger populations, relatively strong economies, and resilient and wellregulated financial sectors, combined with a strong demand for Shari’ahcompliant products. To that end, we expanded the ICD’s institutional equity investment exposure in Bangladesh, Morocco, Saudi Arabia, Turkey and West Africa. These investments were aimed at equity participation in the capital of Shari’ah-compliant financial institutions. The total value of these projects amounts to $62.84 million.
What else should we expect for the remainder of 2017? ICD will continue focusing on the development of what we call ‘Islamic finance channels’ designed to reach out and spread Islamic financial products far more widely with the objective of having a greater developmental impact in its member countries. This will be achieved substantially through setting up Islamic banks, investment and Ijarah companies, Takaful and ReTakaful companies in our member countries. ICD is pioneering many aspects of Islamic finance and sees its role as being a powerful driver for economic change.
The full version of this interview was originally featured in Islamic Business & Finance Issue 103.
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Monday 27th November 2017 Godolphin Ballroom Jumeirah Emirates Towers
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sector
focus [SUSTAINABLE FINANCE]
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Hassan Abdalla
All eyes forward Hassan Abdalla, CEO, Arab African International Bank (AAIB) sat down with Banker Africa to discuss the Bankâ&#x20AC;&#x2122;s sustainable finance practices
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focus [SUSTAINABLE FINANCE]
H
ow do you define sustainable finance?
It is realising the inherent connection between economic growth and social, environmental and governance concerns. Sustainability is a rising megatrend that is bound to change how business is being done. It is an umbrella term that includes different disciplines. Sustainable finance first appeared in the 1990s following the appearance of Sustainable Development concept in 1987. Nonetheless, it has been slow to gain momentum as the industry was growing and making handsome profit and there was no urge to stop and reconsider its business model.
What is the landscape like for sustainable finance in Egypt? Egypt offers a very rich landscape with a huge diversified economy, deep market and large population of around 90 million inhabitants. This situation creates challenges as much as it creates opportunities. It all depends on your ability and agility to develop your business models to leverage opportunities. For example, Egypt has a young population whereby 60 per cent are below the age of 30. This could be deciphered as a burden of unemployment but it also points the way that banks should shift their traditional operations towards microfinance, entrepreneurship funding, along with small and medium enterprises. Financial inclusion has become a nation-wide mandate endorsed by the Central Bank of Egypt. Egyptian banks are faced with a new mandate, which requires new arrangements as it provides rising growth potential. In the same context, funding clean energy and energy efficiency is a new track that is becoming very relevant to the Egyptian context.
How does AAIB promote sustainable finance best practices? AAIB is a forerunner in realising the importance of “sustainability” in the banking business. AAIB is the first bank to join international frameworks in the field of sustainability; including the UN Global Compact since 2005, the London Benchmarking Group since 2007 to report on strategic philanthropy and the 2009 Equator Principles. We have also been forerunners in introducing sustainability reporting or integrated reporting in addition to the traditional and mandatory financial report. We published the first sustainability report ‘Finance With Value Creation’ in the banking industry in 2010. We introduced responsible lending—being the first bank in Egypt and the second in the Middle East to join the Equator Principles (EP) since 2009, and introduced social and environmental risk management. Besides publishing our first Carbon Footprint Report in Egypt during 2013, and assigning a taskforce to study reducing our environmental impact. We are proud that we started the trend in sustainable finance.
Can you explain the principles behind MOSTADAM and any successes the platform has had? MOSTADAM platform for sustainable finance was launched in 2014 to promote sustainable finance in Egypt and the region. It targets capacity building and policy advocacy to instil sustainable practices. We reached a point where we found it compelling to share our experience with our peers and together create an industry movement. These are very special times and the traditional notion of “competition” is gradually
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loosing relevance… now we are heading towards coopetition. Some banks in Egypt have substantial potential and are real add to the movement towards sustainability. Synergy amongst banks will definitely position Egypt as a global forerunner in sustainable finance. We already started providing certified training to bankers representing 60 per cent of Egyptian banking sector. We also introduced two more modules on renewable energy lending and SMEs lending in cooperation with Frankfurt School of Finance & Management.
Are there any industries in particular that are ripe for sustainable finance development? Definitely, the clean energy and energy efficiency industries will greatly assist in the promotion of sustainable finance development. Besides the establishment of small and medium enterprises, entrepreneurship and microfinance.
What do you see for the future of sustainable finance for AAIB? We are looking for ensuring that all our internal business practices in AAIB are integrating the ESG into its operations. We started a decade ago but it is a tedious process. We also aspire to be a driving force to create an industry move on both the regional and global level towards enacting sustainable finance and help the financial industry rejuvenate creating economic growth with social and environmental impact. Our ultimate ambition is to help revise accounting practices to account for environmental and social issues and serve the triple bottom line rather than the single bottom line we are used to.
www.bankerafrica.com
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trailblazer
Empowering the next generation Is education the key to youth unemployment? Banker Africa spoke with Karen Sherman, President, Akilah Institute to find out
Graduates of the Akilah Institute
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y 2050 estimates suggest that around 2.2 billion people could be added to the global population. Of this figure, more than half of the growth will take place in Africa. The continent is already home to some of the youngest populations in the world (we have a chart on page 50 showing this trend). This growth creates tremendous opportunities for African countries over the course of this century, but is leaving many governments with the difficult question of what to do their bulging youth. High levels of youth unemployment are already an issue that many countries are trying to tackle, with the problem only likely to
An Akilah Institute alumna teaches life skills
get worse unless solutions are put in place now. Karen Sherman, the President of the Akilah Institute, is looking to tackle this particular problem. The Akilah Institute has been running since 2010, alongside a sister education technology company MindSky under the umbrella organisation of Fowler Education. The Institute, which runs a women’s college based in Rwanda, trys to tackle the issue of young people, particularly women graduating from top universities across Africa and being unable to find a job for upwards of five years. As to why Akilah has chosen Rwanda, “It is a really interesting environment in
that it’s been very intentionally investing in women and it’s also a country that’s been really investing in the people in terms of building up these skills to be able to expand their workforce participation,” said Sherman. “You still have 84 per cent of women working in subsistence farming but you also have a Government which is majority women so you have both of those extremes in Rwanda.” In order for a student to join the Akilah Institute they must have first passed secondary school, an interview process and English exam. For some idea as to the competitiveness of the programme, the 400 students that will begin their studies at the Institute in September were selected from
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over 4,000 applicants. Four-hundred students in itself represent quite a growth for the Institute and will boost the total student body to close to 500 students, almost double the size of the previous year. The largest percentage of the Institute’s graduates thus far has been in the hospitality management sector, it being Akilah’s oldest major. “Our students are not only doing well in that sector but they’re growing into leadership positions. Marriott Corporation for example is one of our key anchor partners in Rwanda… and a number of our graduates are in their flagship leadership programme,” said Sherman. The two other diploma programmes the institute offers besides hospitality management are information systems, IT, and small business management and entrepreneurship. Sherman notes that graduates have seen tangible successes with 58 per cent receiving at least one salary rise or promotion since graduation; in addition 36 per cent of graduates are in supervising positions over other people. These successes should not be taken lightly, prior to coming to Akilah 75 per cent of students were unemployed and in 78 per cent of cases they are the first one in their family to go to college. “It really is quite astounding that leap to where they are now,” said Sherman. The education technology product that Fowler Education offers, MindSky, works to help graduates find internships and job placements. “There’s a very specific matching algorithm that works with the needs and interests of employers,” said Sherman. “Each potential job seeker has to fill out an application, a profile if you will, where they walk through a series of questions. In addition there’s a soft skills assessment which is part of that... MindSky really works both ends to bring these employers with students together.”
Karen Sherman
The inputs that are going in on the student side will really help move these economies forward and we’d like to see that we’re a part of that. – Karen Sherman
Fowler has seen success with its MindSky product, with a cumulative 89 per cent workforce participation rate amongst graduates from the Akilah Institute. MindSky has been successful enough that Fowler Education has been approached by other education institutions. These institutions will pay for their use of MindSky, which is part of a three-pronged strategy which Sherman outlined of how Fowler Education, traditionally funded by
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philanthropic means, will transform to a self-sustaining organisation. The organisation is currently raising its Series A investment which will be used to expand both MindSky and the Akilah education platform throughout East Africa. In tandem with this, the other two avenues that the company will be looking for revenue from in the future will be the fee structure from students at its Akilah Institute, and fees collected from short educational courses that it intends to start running aimed at working professionals and corporates. For now, Sherman and Akilah have their eyes firmly on the East African region. “In five years I’d love to see us have campuses in a couple more countries, I’d love to see the MindSky platform being used by 50 different educational institutions across East Africa,” said Sherman. Perhaps most importantly though, Sherman is hoping that the path towards the workforce for people, and women more specifically, become a much smoother trajectory than it is currently. This is a two-way street, Sherman continues, because the workforce and the economy more broadly will benefit if these students are able to meet an unmet demand in the economy and help foster growth. “The inputs that are going in on the student side will really help move these economies forward and we’d like to see that we’re a part of that,” Sherman added. “When we talk about all the instability in the world I think a critical piece is, when people don’t see a trajectory for themselves, when they can’t see the money that they need to earn they can’t support themselves, there’s no place for them to grow, or evolve, or participate economically I think they lose hope. When you see a lack of hope, that is a key source of instability in many nations and certainly not just in Africa.”
www.bankerafrica.com
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Unearthing value Roelf Grové, Co-Founder and Managing Director of ValueFinder believes his company’s method of following transactions could lead to hitherto unforeseen efficiency gains
(L-R) Roelf Grové, Co-Founder and Managing Director, Roelf Grové Jnr., Director, Jan Grové, Co-Founder and Technical Director
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problem facing many companies is the difficulties faced in trying to quantify which clients are profitable and which are unprofitable. In complex industries, with many processes involved, and with data disparity across many devices, finding a way to efficiently manage the client base from a cost perspective proves challenging. ValueFinder, founded in 2009, aims to solve this problem. Roelf Grové, the Co-Founder and Managing Director of ValueFinder said
that there were two key fundamentals to solve in order to find a solution to this problem. The first of these was that all pertinent data needed to be harvested, no matter how disparate it might be, or where it resides, and secondly the system would need to emulate the full behaviour of the organisation. “We ending up finding out that the way that you can do this is by examining every single transaction that takes place in the organisation, even if there are millions of them,” said Grové.
“We have to follow the transaction from its origin to ultimate destination, something we call transaction journey analysis.” In many large organisations, such as a banking and finance institution, an airline, or a logistics company, the degree of complexity is high, making this a challenge. However, ValueFinder aims to follow every transaction and find every point at which it touches an organisation in order to find whether it is absorbing its fair share of cost in relation to the size of the transaction. Once this has been achieved, ValueFinder is able to determine a company’s profitability by transaction, something which very few organisations are able to do. This gives the company the ability to find where profits are made and generated, and where profit is being lost. “[Our clients] fully understand that their clients are unevenly profitable and that resources are unequally productive, but by going down to the very lowest level of a transaction we can actually pick up on that and quantify it.” Out of this analysis, ValueFinder pulls out two resources. “First of all we find the profitability by client and secondly we quantify the productivity by resource, which our clients really find extremely helpful and useful in making decisions.” The bulk of ValueFinder’s clients are within the supply chain industry, of which Grové has personal knowledge having worked in the industry himself. He sees this as a long term strength for the company, “There’s actually very little in life that can’t be described as a supply chain. Even if it’s within the four walls of an office, that’s a supply chain, where there’s data moving or physical goods or even strings of information, that’s a supply chain.” ValueFinder has also worked with airports services companies, another intensely complex industry, with
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250 % OF DECLARED PROFIT
Profitability
C r e a t i o n
P r o f i t
Accumulative Profit
P r o f i t
E r o s i o n
100 % OF DECLARED PROFIT
Retain
Re-Position
Darlings
Devotees
Re-Price Delinquents
Clients/Products/Channels/Market Segments ranked by Profitability
This diagram highlights the issue that companies face with clients that are unknowingly costing the company, which ValueFinder calls ‘delinquents’. Source: ValueFinder
multiple levels needing monitoring, from passengers, goods, transit and aircraft cleaning. In general, ValueFinder is particularly suited for highly complex transaction intensive companies that need to be able to realise additional efficiency gains. The company has even worked with some financial institutions in South Africa which are looking to find which clients are accessing specific divisions, which are the most profitable, and which transactions are resulting in net losses.
START-UP CHALLENGES
Funding has always been an issue for start-ups, especially those on the African continent as we have frequently covered in this section of the magazine. Although ValueFinder was funded entirely from the own pockets of the founders, Grové says that they actually turned away interested parties that were looking to invest money. Mainly this was due to the company
looking for partners to help in expansion rather than just funding. “We are proud to say that after eight to nine years we do not have a bank overdraft, it is self-funded,” said Grové. “There was a slow growth and maybe the growth was too slow but the reason for that was that we wanted to get our application to absolute industrial strength and today it is web based, it’s in the cloud, it can be rolled out any place in the world, it is extremely stable.” Grové points to the loyalty of ValueFinder’s client base as testament to the strength of the company. Of ValueFinder’s day one clients, all are still working with the company. Key to the ongoing performance of the company is the issue of data governance. “I think one of the challenges going forward which is also presenting us with a huge opportunity is the whole issue of data governance because our application can only work if the data that is fed into it, we refer to as CCC—clean, correct
and complete,” said Grové. This is an ongoing issue not just for ValueFinder’s clients but for businesses in general. For ValueFinder this can translate to client’s not being able to deliver the necessary data in order for the product to function correctly. For the future, Grové believes that the company is ready to ramp up to the international market. Grové argues that although he has been advised that due to the success of ValueFinder’s product in the supply chain ecosystem the company should focus on that internationally, he believes that the application is ready for anything to be thrown at it. “The application is ready, whether we use it for a financial institution, whether we use it for airport servicing company, whether we use it for warehousing and distribution of pharmaceutical products, we can emulate all of those businesses without writing one letter of code.”
www.bankerafrica.com
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banker africa
awards
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Banker Africa—West Africa Banking Awards 2017 results announced The results are in for the annual Banker Africa— West Africa Banking Awards 2017
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he annual Banker Africa—West Africa Awards is a programme open to all banks and financial institutions in the region. The aim of the Awards is to recognise outstanding performance and excellence in the financial services industry. Shortlists for the awards were compiled by our group of experts before voting opened on www.bankerafrica.com. The West Africa Awards are designed to reward innovation and the ability to gain market share. The winners were selected by the registered readers of CPI Financial products and services—in other words, your peers in the financial services industry.
THE RESULTS
This year institutions were shortlisted across 15 categories, the results of which are:
REGIONAL
WINNERS
Best Retail Bank West Africa
GCB Bank
Best Commercial Bank West Africa
GTBank (Ghana)
Best Corporate Bank West Africa
Guaranty Trust Bank (Nigeria)
Best Investment Bank West Africa
Rand Merchant Bank (RMB) Nigeria
Best Islamic Bank West Africa
Banque Islamique du Sénégal
Most Innovative Bank West Africa
GTBank (Ghana)
Country Awards
Best Retail Bank – Ghana
Fidelity Bank Ghana
Best Commercial Bank – Ghana
GTBank (Ghana)
Best Corporate Bank – Ghana
GTBank (Ghana)
Best Online Platform – Ghana
GTBank (Ghana)
Best Retail Bank – Nigeria
Guaranty Trust Bank (Nigeria)
Best Commercial Bank – Nigeria
Zenith Bank
Best Corporate Bank – Nigeria
Guaranty Trust Bank (Nigeria)
Best Online Platform – Nigeria
First Bank of Nigeria
Best Bank – Cote D’Ivoire
SGBCI (Société Générale de Banques en Côte d’Ivoire)
Best Bank – Senegal
Ecobank Sénégal
REWARDING EXCELLENCE
The core philosophy of CPI Financial, the publisher of Banker Africa, is transparency, ensuring accurate reporting of economics and financial matters, the factors determining the future of the banking and finance community and the business deals driving the industry forward. Our Awards programmes are designed to reward and promote excellence and competition in the drive to set new standards in the industry in quality of service, best practice and financial performance. The financial institutions that win one or more of the Banker Africa Awards in 2017 and in future years will be those offering best-in-class services that meet the needs and exceed the expectations of their customers. They will, truly, be winners. In each of four regions, North Africa, East Africa, West Africa and Southern Africa, we hold separate awards competitions.
www.bankerafrica.com
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Profiles in Leadership An important new series from CPI Financial, the Middle East’s leading financial and business publishing house. In challenging times, clear and dynamic leadership is the key to business success. CPI Financial’s new series Profiles in Leadership will identify and define those qualities necessary to succeed, profiling successful individuals and their businesses.
Format Each book in the series Profiles in Leadership will consist of approx. 10,000-12,000 words text in English and will be lavishly illustrated in full colour, printed on high quality stock and hardback case-bound with a full-colour dustjacket.
Promotion The series will be promoted through CPI Financial’s family of leading business and finance magazines and online via our websites.
Options Presentation Box – the books can be offered in presentation boxes Arabic – the books can be offered in Arabic also
Next steps Take part in this new series, showcase your successes and create a key promotional and marketing tool for you and your company.
To learn more, contact: OMER HUSSAIN +971 4 391 5419
omer@cpifinancial.net
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
P in L advert.indd 1
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technology
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How will biometrics benefit African banks? How should African banks take advantage of the technological developments in biometrics? We spoke to Gerhard Oosthuizen and Niel Bester from South African fintech provider Entersekt to find out (CREDIT: WHITEMOCCA/SHUTTERSTOCK)
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hat do you see as the key benefits of introducing biometrics in retail banking? Gerhard Oosthuizen, CIO, Entersekt: In three words: usability, usability, usability. Retail banking in Africa is mobile, and the nature of the device and how people interact with it requires that we limit as many clicks and taps as possible. Biometrics enablement on the smartphone offers a simple, quick alternative to passwords and PINs. Push-based authentication on the mobile does too, as it allows users to
respond to authenticate prompts with a simple tap on their phone. Also, over 400 million people in Africa have no official ID, so biometrics can help banks establish an identity where none formally exists.
Beyond fingerprint readers, how likely are other types of biometrics to catch on, i.e. palm prints, voice, iris and facial recognition? GO: Outside of the bank branch—and, really, the branch is irrelevant to much of Africa’s population – any use of biometrics will centre on the mobile phone.
Whatever alternatives to fingerprints security experts enthuse over, their potential in the mass market will be dictated by handset manufacturers’ very practical cost-benefit analyses. Lowerend phones will obviously not incorporate the latest in biometrics innovation. That said, the phone camera and microphone already give solution providers a lot to work with.
Are African banks using biometrics yet? Niel Bester, SVP Products, Entersekt: Biometrics is already being used in South Africa to enrol banking
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users and secure other in-branch interactions. Our customer Capitec Bank was an early example, but most other domestic banks have followed suit. Investec was the first bank in the southern hemisphere to introduce voice recognition as a security tool. Investec and Absa provide the option of fingerprint-based user authentication on the mobile phone, following Standard Bank’s precedent.
Will the usage of biometrics in Africa become widespread in the near future? GO: Not immediately, no. Growth in smartphone sales will drive adoption over the next few years, with banks and payments providers in the larger African economies leading the charge. Africa’s smartphone connections are sitting at about a quarter of a billion. With handset prices falling, that figure should double by 2020. Not all of those phones will have biometrics capabilities, but most of the newer ones will.
Do you think perceived security vulnerabilities will damage the popularity of biometrics? GO: Certainly, there are problems with consumer-facing biometrics systems, but mobile biometrics is maturing fast. I don’t see its current vulnerabilities damaging uptake significantly, at least when it comes to securing banking and payments. The big mobile companies have followed an approach that does not share biometrics data beyond the device, which addresses security and privacy fears over the centralised storage of this information. What’s more of an issue is that biometrics alone does nothing to guarantee your identity to a digital service provider. As implemented on today’s mobile phones, a matched fingerprint unlocks a secure enclave on the device where the user’s password is stored. It’s that password that is
Gerhard Oosthuizen, CIO, Entersekt
transmitted back to the bank. So, from the server’s perspective, this is really just a password-enabled login with all the vulnerabilities we associate with single-factor, password-based authentication. For biometrics to be any more secure than a simple password-based login, you must pair it with another factor of authentication. At Entersekt, we recommend a ‘challenge-response’ mechanism, where a request is sent to the user to be “answered” by digitally signing the request with an authentication secret. Once the server verifies
Niel Bester, SVP Products, Entersekt
the signature as valid, the login or transaction can continue. In this way, the potential for impersonation by fraudsters is eliminated. Every challenge is unique to that specific transaction, and access to the secret is proven with the unique signature. The user’s secret therefore never leaves their device, making impersonation through a replay attack impossible. We create a strong bond between the two factors, by storing the secret in a place on the phone where it can only be accessed by presenting a biometric element.
About Entersekt Entersekt, based in South Africa and founded in 2010, provides consumer-focused mobile security solutions. Their Transakt SDK, available for iOS, Android and Windows Phone, is built for easy integration into existing or new apps, and provides a tool set that enables organisations to develop secure mobile applications. Transakt provides a seamless PKI infrastructure, device binding, dynamic public-key pinning, secure storage, transaction signing, as well as malware resistance through root and jailbreak detection. Entersekt’s technology also supports biometrics and exceeds all regulatory requirements for strong authentication.
www.bankerafrica.com
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Sub Saharan M&A on the rise The value of announced M&A transactions has reached its highest point since 2013
Regional M&A stood at 18.1 billion for H1 2017 (CREDIT: MACGYVERHH/SHUTTERSTOCK).
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homson Reuters has released new evidence that mergers and acquisitions (M&A) transactions for H1 2017 reached the highest point since 2013 with a value of $18.1 billion. Inbound M&A also reached a four year high of $10 billion with the US, the UK and China leading the investment pool, whilst outbound M&A declined 39 per cent to $1.8 billion for H1 2017. Meanwhile, domestic and inter-Sub Saharan African M&A totaled $3.7 billion, up 38 per cent year-on-year. “Domestic and inter-Sub Saharan African M&A totalled $3.7 billion, up 38 per cent year-on-year. South Africa’s overseas acquisitions accounted for 71.9 per cent of Sub Saharan African outbound M&A activity, while acquisitions by companies headquartered in the Mauritius and Seychelles accounted for 17.8 per cent and 10.3 per cent respectively,” said Sneha Shah, Managing Director, Africa, Thomson Reuters. The largest deal announced during the first half of the year was that of Exxon Mobil’s $2.8 billion acquisition of a 25 per cent stake of a Mozambique liquefied natural gas project. This was followed by Vodacom Group’s
stock swap transaction acquisition of Vodafone Kenya worth $2.5 billion. Investment banking fees have likewise risen for the first half of 2017. Thomson Reuters announced that fees reached $244.7 million, a 12 per cent increase year-on-year. Completed M&A transactions brought fees in totalling $71.4 million, a one per cent increase year-on-year. Thomson Reuters noted that Citi earned the most investment banking fees in the region for H1 2017, with 12.6 per cent of total fee pool, totalling $30.8 million, whilst Morgan Stanley topped the completed M&A and ECM fees ranking with Citi also topping the DCM underwriting fee ranking. Meanwhile, China Construction Bank was ranked first for syndicated loan fees. Goldman Sachs was announced as topping the H1 2017 Any Sub Saharan African Involvement Announced M&A Financial Advisor League Table with a 22.1 per cent share of the market. Equity capital markets underwriting fees increased 32 per cent to $71 million, a 10 year high. Sub Saharan equity and equity-related issuance totalled $4.8 billion during H1 2017, a 28 per cent rise over 2016.
Barclays Africa Group led the pack here with its $2.9 billion follow on offering standing out as the biggest ECM deal for this year so far, noted Thomson Reuters. Follow on offerings accounting for a full 83 per cent of total ECM activity in Sub Saharan Africa by value, whilst IPOs and convertibles accounted for five and 12 per cent each respectively. Morgan Stanley topped Thomson Reuters Sub Saharan African ECM league table during H1 2017 with an 18.6 per cent share of the market. “Sub-Saharan African debt issuance raised a total of $15.3 billion in proceeds during the first half of 2017,” said Shah. “This was more than double the value recorded during the same period in 2016 and by far the highest first half total since Thomson Reuters records began in the 1970s.” Thomson Reuters recorded Côte d’Ivoire as the most active issuer nation with $6.8 billion in bond proceeds, accounting for 44.7 per cent of market activity, followed by Nigeria and South Africa. The firm also noted that Standard Chartered took the top spot in its Sub Saharan African bond ranking for H1 2017, with a 14.7 per cent market share, worth $2.2 billion of related proceeds.
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PICTURE OF THE MONTH
The opening of the 91st Agricultural and Commercial Show in Zambia, held under the theme “Promoting a Green Economy” (CREDIT: GCIS/GOVERNMENTZA/FLICKR).
African countries typically have some of the youngest populations in the world PERCENTAGE OF POPULATION UNDER 25 NIGERIA 62.3 KENYA 59.7 ZIMBABWE 59.1 GHANA 56.8 SOUTH AFRICA 46.4 USA 32.3 UK 29.6 JAPAN 22.6
(CREDIT: CIA FACTBOOK/ATLAS/QUARTZ).
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