#49 - October 2017 by CPI Financial

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OCTOBER 2017 | ISSUE 49

ISSUE 49 | OCTOBER 2017 Sound prospects Morocco to return to historic growth rates

Sound prospects

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A CPI Financial Publication

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OPINION Africa faces fiscal frustra ons

GOVERNANCE Reducing risk with regulatory reform

Dubai Technology and Media Free Zone Authority

Morocco Morocco to to return return to to historic historic growth growth rates rates

TRAILBLAZERS Building the business of Africa

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OCTOBER 2017 | ISSUE 49

EDITOR’S LETTER

ello and welcome to the October issue of Banker Africa. This month our country focus looks at the North African country Morocco. Following a difficult year in 2016, the country’s agricultural sector has seen a stunning rebound, with GDP growth expected at around four per cent in 2017, up from an estimated 1.5 per cent in 2016. The outlook for the country is generally stable, with the country putting in place some interesting policies—especially in the realm of the environment. Encouraging investment is something that all countries on the African continent need to focus on to a greater or lesser extent. On page 26 we take a look at how governments can adapt the regulatory landscape in order to facilitate greater investment. Dawda Jawara III, the Legal director at Clyde & Co. discusses with Banker Africa whether these policies should be implemented at a group level by supranational unions or at a sovereign level. In recent years we have seen an increase in the amount of investment that has flowed from the Middle East region to the African continent. We spoke with Dr Cheick Modibo Diarra, the former Prime Minister of Mali, about this trend and what we can expect to see in the future in our Investment section in this issue. “The areas of investment that I see as rising in the near future would be that of healthcare and education,” said Diarra. “These are two areas that Africa is really demanding for the simple reason of demographics.” Our Trailblazer this month features MES & DAK. The company focuses on the MSME sector and is seeking to bridge the $380 billion credit financing gap in the Africa and Middle East region for SMEs. MES & DAK provides a suite of apps to help improve access to funding. Turn to page 36 to get the full story. Until our next issue,

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

IN THE NEWS 6 News analysis: Statue of Jacob Zuma unveiled in Nigeria

Essential financial news from around the continent

10 Spotlight: Egypt

HAPPENINGS 12 Good governance IS good business! 13 Encouraging investment www.bankerafrica.com

2017 Sound prospects

CASE STUDY Zimbabwe banks, economy buckles under liquidity crunch

TRAILBLAZERS Match-making

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OPINION Africa faces fiscal frustra ons

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and Media Free Dubai Technology

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OPINION Why the quest for a single currency for West Africa won’t materialise soon

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A CPI Financial

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Poli cal issues breed doubt is ub ub btt in in Kenya Kenya en a A CPI Financial Publication

A CPI Financial

COUNTRY FOCUS The retrea ng shadows

Uncertainty reigns

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MARKETS moves con nental Kenyan trade

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Morocc Morocco to to return return to to historic historic growth growth rates rates

Dubai Technology

recovery aid the

TRAILBLAZERS Unearthing value

rates

and commodity

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to historic growth

policy back Government

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Morocco to return

Bringing Nigeria

Get the next issue of Banker Africa before it is published. Full details at: www.bankerafrica.com

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Sound prospe

Dubai Technology and Media Free Zone Authority

2017

Political issues breed doubt in Kenya Why the quest for a single currency for West Africa won’t materialise soon

ISSUE 47 | AUGUST

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| ISSUE 49

ISSUE 49 | OCTOBER

ISSUE 48 | SEPTEMBER 2017

| ISSUE 47

OCTOBER 2017

SEPTEMBER 2017 | ISSUE 48

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AUGUST 2017

a.com www.bankerafric

GOVERNANCE Reducing risk with regulatory

reform

TRAILBLAZERS Building the business of Africa

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entersekt.com www.bankerafrica.com

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OCTOBER 2017 | ISSUE 49

www.bankerafrica.com Chairman SALEH AL AKRABI

OPINION 14 Africa faces fiscal frustrations

Growth is slow and recovery is expected in the near-term, writes Edmund Higenbottam, Managing Director of Verdant Capital

Chief Executive Officer TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681

34 CIB: Addressing SMEs needs in

MARKETS 16 Markets that make you look twice

It isn’t a question of looking at Africa’s markets; it’s a question of looking harder.

COUNTRY FOCUS 20 Sound prospects

Fuelled by a recovery in agriculture, the Moroccan economy looks set to return to historic growth rates

GOVERNANCE 26 Reducing risk with regulatory reform

Corporate governance and farreaching regulations with Dawda Jawara III, Legal Director at Clyde & Co

CASE STUDY 28 Building a banking partnership

Moza Banco is building a stronger customer relationship says speak to Moza Banco Executive Chairman, João Figueiredo

30 Saying goodbye to sanctions

Faisal Islamic Bank is looking to the future according to Albaqir Elnoury the General Manager of Faisal Islamic Bank

SME FINANCING 32 Banking in Egypt

Arab African International Bank is progressing in advancing sustainable corporate services in Egypt

Egypt CIB has come up with several strategies to help SMEs get the services and support they need according to Hisham Ezz Al-Arab, Chairman and Managing Director, CIB

TRAILBLAZER 36 Building the businesses of Africa

Business and financial consultancy fintech developer MES & DAk is bringing business to the micro entrepreneur

TECHNOLOGY 40 AI in financial services:

the next frontier Abhijit Duge, Industry Principal at Finastra looks to the ways in which AI technology could alter the financial services landscape

INVESTMENTS 42 The Gulf-Africa corridor

Dr Cheick Modibo Diarra, former Prime Minister of Mali, discusses the impact of Middle Eastern investment on the African continent

44 Venture capital by education

We spoke with Adedana Ashebir, Regional Manager, Africa, Village Capital about her firm’s unique approach to venture capital

46 Africa: one, but not same

According to a new report, too many investors still think of Africa as a country rather than a continent

THE VIEW 50 Photo and chart of the month

COVER PHOTO: …STORRAO…/FLICKR

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

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Contributors EDMUND HIGENBOTTAM, ALBAQIR ELNOURY, ABHIJIT DUGE Chief Designer BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 Senior Designer FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

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analysis

Statue of Jacob Zuma unveiled in Nigeria Citizens of both South Africa and Nigeria have expressed confusion at the new statue

arlier this month South African President Jacob Zuma was honoured in Nigeria’s Imo State by a large bronze statue in his depiction. Zuma had stopped at the home of the Governor of Imo State, Owelle Okorocha, in between a state visit to Zambia and a working visit to the Democratic Republic of Congo. The bronze statue stands taller than the surrounding flagpoles. Zuma was also awarded the Imo Merit Award, the highest in the State, which, according to a statement from Zuma’s office, is conferred on distinguished individuals who have been deemed to have made a difference in the development of their communities. The stated purpose behind the trip was to discuss philanthropy, with Zuma

due to visit the Rochas Foundation and Hall of Fame. Okorocha, also known as ‘Rochas’, has governed Imo state since 2011 and is known for his education philanthropy. In a tweet Okorocha thanked the South African President for the visit to the Imo state and said the, “Signing [of] an MoU [Memorandum of Understanding] with Rochas Foundation to help send helpless African children back to school.” Despite this though, much of the focus of this story has been on the statue rather than the philanthropic aims of the trip. The cost in particular has played a role in public discourse regarding the statue. The statue cost a reported NGN 520 million ($1.4 million), although this figure is unconfirmed. SaharaReporters reported that some

The statue cost an estimated NGN 520 million (CREDIT: GOVERNMENTZA/FLICKR).

Nigerians had taken to Twitter to condemn the use of state funds to honour a foreign president facing corruption charges whilst workers in the state are owed salaries. There have also been further unconfirmed reports that Okorocha intends to repeat this process with six more statues of other African leaders, despite criticism. Zuma was also honoured in a ceremony with the title of Ochiagha Imo, a traditional chieftaincy title that translates as the ceremonial leader of warriors. The visit to Nigeria did not include a stop in Abuja or a meeting with President Muhammadu Buhari, Zuma’s Nigerian counterpart, but, according to a statement, Zuma did meet with business and local political leaders in Imo state.

A street in Imo State has also been dedicated to the South African President (CREDIT: GOVERNMENTZA/FLICKR).

www.bankerafrica.com

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RATINGS REVIEW BANKS AND BUSINESSES Capital Intelligence Ratings announced that it has affirmed Arab African International Bank’s (AAIB) Long- and Short-Term Foreign Currency Ratings (FCRs) both at ‘B’ with a ‘Stable’ Outlook. CI Ratings recently upgraded the Bank’s Long-Term FCR to ‘B’ in line with the upgrade of Egypt’s Sovereign Long-Term FCR to ‘B’. Fitch Ratings has affirmed Credit Agricole Egypt’s (CAE) Support Rating at ‘4’ and National Long- and Short-Term Ratings at ‘AA+(egy)’ and ‘F1+(egy)’, respectively. CAE’s Support Rating reflects a limited probability of support from the bank’s ultimate shareholder, France’s Credit Agricole (CA; A+/Stable/a+). While CA’s propensity and ability to support its Egyptian subsidiary are currently high, they are constrained by Egypt’s Country Ceiling of ‘B’. Fitch Ratings has affirmed Commercial International Bank’s (CIB) Long-Term Issuer Default Ratings (IDR) at ‘B’, Viability Rating (VR) at ‘b’, Support Rating at ‘4’, Support Rating Floor at ‘B’ and National Long-Term Rating at ‘AA(egy)’. The agency said that CIB’s IDR is driven by its VR. CIB’s financial metrics are stronger and less volatile than peers, although the bank is significantly exposed to sovereign debt. Fitch Ratings has upgraded Telecom Namibia Limited’s (TN) LongTerm Local-Currency Issuer Default Rating (IDR) to ‘BB+’ from ‘BB’ and National Long-Term Rating to ‘AA(zaf)’ from ‘A(zaf)’. The Outlooks are Negative.

ON THE RECORD President Akinwumi Adesina in Niamey: The AfDB is working with Niger to speed up its development

During the meeting, the two leaders highlighted the convergence of the priorities of the host country and the AfDB Group. Africa’s $6.8 billion reinsurance market is expected to recover markedly in 2018

This is the outcome of the second edition of the Africa

Reinsurance Pulse, launched today at the 22nd African Reinsurance Forum in Port Louis, Mauritius. In 2016, Africa’s GDP growth dropped to 1.8 per cent, below the global average of 2.5 per cent. Insurance premiums declined by 15.3 per cent to $61 billion.

Rx Healthcare Fund announces anchor investors

Rx Healthcare Fund, an Africa-focused healthcare private equity fund currently under establishment, announced that GE Healthcare is set to become an anchor limited partner in Rx. This follows a commitment to Rx by the African Development Bank, the proposed minority investment by GE is subject to completion of fundraising.

Africa’s economic performance improves in 2017

Africa’s economic outlook improved in 2017 compared with 2016 and is expected to gain momentum in 2018. GDP growth in 2017 is expected at three per cent up from 2.2 in 2016 and projected to expand to 3.7 per cent in 2018, the African Development Bank said in an updated forecast released in Abidjan on Thursday, 12 October 2017.

Moody’s Investors Service has placed on review for downgrade the B1 global scale long-term local-currency deposit ratings and the b1 baseline credit assessment (BCA) of three Kenyan banks: KCB Bank Kenya Limited, Equity Bank Kenya Limited, and Co-operative Bank of Kenya Limited. The rating action is driven primarily by a potential weakening of the Kenyan government’s credit profile.

SOVEREIGNS Fitch Ratings has downgraded Gabon’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’. The Outlook is Negative. The downgrade of Gabon’s IDRs reflects the sharp deterioration of the country’s fiscal and external positions, an accumulation of large domestic and external arrears and a sharp rise in public debt, following the oil price shock starting 2014. Moody’s Investors Service has today placed the B1 long-term issuer rating of the Government of Kenya on review for downgrade. Moody’s expects that Kenya’s government debt burden, which has risen to 56.4 per cent of GDP in June 2017, up from 40.5 per cent five years ago, will continue to rise due to persistently high primary deficits and borrowing costs.

The continent’s averages compare favourably with global economic growth projections of 3.5 and 3.6 per cent GDP growth in 2017 and 2018, respectively (CREDIT: KUTLAYEV DMITRY/SHUTTERSTOCK).

www.bankerafrica.com

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A QUICK WORD

[DIB] worked alongside the regulator and now have a licence to operate, the bank is up and running, it is already open and we have ambitious plans for East Africa. Kenya is just the start, we are also looking at the East African belt, but we have to walk before we can run, so we are taking it at the right pace and making sure that the organisation actually comes out of this gestation period. Kenya is going to be a country we will be focussing on in years to come.

IMF and Bank Al-Maghrib extend investment agreement to support IMF’s lending to low-income countries

Bank Al-Maghrib agrees to extend its investment agreement for the benefit of the Poverty Reduction and Growth Trust until 2022 in support of IMF’s concessional lending to low-income member countries. The International Monetary Fund (IMF), as Trustee of the Poverty Reduction and Growth Trust (PRGT), has entered into an amendment of its 2012 investment agreement with Bank Al-Maghrib, through which Morocco committed to provide a subsidy contribution of SDR 1.1 million to the PRGT. To achieve this goal, the investment agreement with Morocco was extended on 13 October by up to five years. This amendment, made effective on 13 October 2017, constitutes the first PRGT investment agreement that takes into account the new investment strategy for PRGT assets approved by the IMF Board in March this year.

Greater security for UAE commodity and finance trade with Africa

—Dr Adnan Chilwan, GCEO, Dubai Islamic Bank (DIB) featured in the Banker Middle East 100. For these stories and more, visit www.bankerafrica.com

Ecobank launches mVisa across 33 African Countries

Ecobank has partnered with Visa to launch Ecobank Scan+Pay with mVisa solutions to their consumers. Ecobank Scan+Pay with mVisa delivers instant, secure cashless payment for goods and services by allowing customers to scan a QR code on a smartphone or enter a unique merchant identifying code into either a feature phone or smartphone. The payment goes straight from the consumer’s bank account into the merchant’s account and provides real-time notification to both parties, whilst the mVisa solution enabels customers to send money to any Visa cardholder worldwide. “We are fulfilling our commitment to give every African the right to participate effectively in the global economy at an affordable price and in a convenient manner. Ecobank Scan+Pay with mVisa helps merchants— particularly small and micro merchants—to grow their sales without the risks of carrying cash whilst also giving consumers the ability to pay for goods and services in a cashless manner from their phones. Consumers can also conduct person-to-person payments and instantly transfer money to their friends and family via their phones at very low cost,” said Ecobank Chief Executive Officer Ade Ayeyemi.

DIFC Courts Chief Justice Michael Hwang noted that Zambia has become increasingly important as a gateway for UAE businesses to Africa (CREDIT: ESFERA/SHUTTERSTOCK).

The Dubai International Financial Centre (DIFC) Courts have brought additional certainty to UAE companies operating in southern Africa by signing a cooperation agreement covering contract enforcement with the High Court of Zambia. The agreement signed by DIFC Courts Chief Justice Michael Hwang and High Court of Zambia Chief Justice Irene C. Mambilima in Dubai, clarifies the procedures for the mutual recognition and enforcement of money judgments between the two courts. “Zambia is an emerging gateway to southern Africa for UAE businesses, while imports from the country have increased markedly in recent years. Underpinning both trends are an increasing number of contracts, of which, inevitably, some will result in disputes. This agreement gives additional confidence to businesses operating in both the UAE and Zambia that a breach of contract will be enforced. It also reaffirms the DIFC Courts’ position as one of the world’s most connected judiciaries,” said Hwang.

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Lighting Africa/Tanzania launches new campaign to promote solar lighting and energy

Lighting Africa, a joint World Bank-IFC programme and innovation, today announced the launch of a two-year consumer education campaign to promote solar off-grid lighting and energy products in rural communities not connected to the grid. The campaign, titled ‘Ngaa na Sola - Ndo Mpango Mzima,” (shine with solar, it is the complete deal), aims to raise consumer awareness about the benefits of modern, quality off-grid lighting, helping communities The campaign aims to raise awareness of the benefits of make informed purchasing decisions. “This campaign announced by IFC today off-grid solar lighting (CREDIT: SITTHIPONG PENGJAN/ SHUTTERSTOCK). has come at an opportune time in the quest of accelerating the uptake of the highest quality off grid solar lighting products and services at the least possible cost. This campaign will help to demonstrate that renewable energy especially solar is both affordable and good for the economy. We are also happy to note that this campaign will advocate product quality something which will be useful in restoring consumers’ confidence,” said Prof. James E. Mdoe, Ag: Permanent Secretary for Ministry of Energy and Minerals while officiating the launch.

STANDARD CHARTERED APPOINTS PRIVATE BANKING HEAD FOR AFRICA AND EUROPE Standard Chartered Private Bank has appointed Demir Avigdor as Managing Director and Market Head, Africa & Europe. Commenting on the appointment, Ian Gibson, Managing Director, Regional Head Africa, Middle East & Europe, Private Banking, said, “Across our network we’re investing in our Private Banking business, and building our talent and expertise. As such I’m delighted to have Demir join the team. He brings with him a wealth of experience and will be key to building our franchise in Africa and Europe.” According to a statement from the financial institution, Demir spent over 16 years at UBS in a variety of wealth management, advisory and leadership roles, with a particular focus on High Net Worth clients. He will commence his role on 30 October 2017, reporting to Gibson.

AfDB approves $200 million to IDC to support industrialisation projects in Africa

The Board of Directors of the African Development Bank Group (AfDB) has approved a private sector multi-currency line of credit of $100 million and ZAR 1.3 billion to Industrial Development Corporation Plc (IDC) of South Africa. The operation will support industrialisation projects in both South Africa and other Regional Member Countries (RMCs). IDC is a South African development finance institution (DFI), owned by the South African government. Its mandate is to promote industrialisation in Africa by investing in, and developing the industrial base of South Africa and other RMS, thereby helping to scale-up the AfDB’s High 5 agenda, particularly “Industrialize Africa”. Fifty per cent of the funding (the rand tranche) will be used for projects in South Africa and the balance (the USD tranche) will be directed to Current economic challenges in South Africa will likely increase regional projects in Mozambique, Malawi, Ghana, the impact that this investment will make (CREDIT: RED IVORY/ Kenya, Namibia, Mauritius, Swaziland and Sudan. SHUTTERSTOCK).

IMF Executive Board concludes 2017 Article IV consultation with Zambia

Good rains and rising copper prices have improved the near-term outlook for the Zambian outlook (CREDIT: JOSEF BOSAK/SHUTTERSTOCK).

On 6 October 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia. The near-term outlook for the Zambian economy has improved in recent months, driven by good rains and rising world copper price. The economy was in nearcrisis from the fourth quarter of 2015 through most of 2016, reflecting the impacts of exogenous shocks and lax fiscal policy in the lead up to general elections. Low copper prices reduced export earnings and government revenues, while poor rainfall in the catchment areas of hydro-power reservoirs led to a marked reduction in electricity generation and severe power rationing. A sharp depreciation of the kwacha fuelled inflation which rose from an annual rate of seven per cent in mid-2015 to nearly 23 per cent in February 2016. Tight monetary policy succeeded in stabilising the exchange rate and slowing down inflation to 6.3 per cent in August 2017, but contributed to elevated stress in the financial system evidenced by a sharp rise in nonperforming loans and a plunge in the growth of credit to the private sector. Stress tests suggest that the banks are resilient to credit and liquidity pressures, but the financial system faces considerable risks, owing to high dependence on copper exports, rising public debt and funding pressures.

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spotlight [EGYPT] Arqaam Capital upbeat on Egypt, committed to grow its franchise

The land area of the two stations will add up to approximately 360,000 square metres (CREDIT: CARPATHIANPRINCE/SHUTTERSTOCK).

KarmSolar to build $23 million solar stations for Egypt’s Dakahlia Group in 2018 KarmSolar has signed a deal with Dakahlia Group subsidiaries Dakahlia South Valley Poultry and Dakahlia Wadi El Natroun Agriculture, to provide 75 per cent of their energy needs over 30 years. Energy will be made available through two stations in Menia and Wadi Natroun that will be built with an investment of $23 million and will generate 23.5 megawatts of electricity, making this the largest ever private power purchase agreement (PPA) signed in Egypt. “This is a critical milestone in the brief history of KarmSolar. KarmPower, our subsidiary, is going to become through this deal the largest private sector solar energy provider in the country. Not only that, but it will provide the power at a lower cost than the government,” said Ahmed Zahran, CEO and co-founder, KarmSolar.

Emirates NBD Egypt PMI: Business confidence climbs to 15-month high

The downturn in the Egyptian nonoil private sector was extended to September, but companies were strongly optimistic towards growth prospects. Worsening business conditions stemmed from ongoing reductions in new orders and output, whilst job shedding accelerated to the fastest in eight months. Furthermore, new export orders declined for the first time since March. On the price front, rates of input cost The survey found optimism improved further in September with and output charge inflation price pressures easing (CREDIT: RONSTIK/SHUTTERSTOCK). based. The survey, sponsored by Emirates NBD and produced by IHS Markit, contains original data collected from a monthly survey of business conditions in the Egyptian private sector. Commenting on the Egypt PMITM survey, Khatija Haque, Head of MENA Research at Emirates NBD, said, “Improving export demand had been the one bright spot in the PMI surveys over the last few months, but unfortunately this seems to have reversed in September, with new export orders declining for the first time in six months. Both output and total new orders fell at a faster rate in September as domestic demand remained weak. However, businesses were more upbeat about the outlook for the coming year, with expectations for as a more stable currency and lower inflation.”

Speaking on the sidelines of Arqaam Capital’s Fourth MENA Investor Conference, Radi El-Helw, Managing Director, Arqaam Egypt said, “With the brave and bold economic and structural reform programme that the Government of Egypt has embarked on, we are bullish with respect to the future prospects of the Egyptian market. We are witnessing firsthand the steady improvement in the country’s key economic indicators, and we do believe that while significant challenges still remain, we see more opportunities than risks going forward.” “For an investment bank like Arqaam Capital with a strong commitment to growing its business in the Middle East and African markets, Egypt will continue to provide for an exceptional value proposition to recruit and build a large on-the-ground presence to not only cover the Egyptian market, but to also cover neighbouring markets in North and East with Cairo serving as a natural hub.”

Moody’s: Egyptian banking system outlook is stable as economic growth picks up

Moody’s Investors Service sees the outlook for Egypt’s banking system as stable, as economic growth picks up, loan performance remains broadly resilient and banks benefit from a stable deposit base. Economic growth will be driven by rising foreign investment, resilient domestic consumption and the gradual recovery of the tourism industry. Moody’s forecasts that growth will pick up to 4.5 per cent for the fiscal year ending June 2018, from four per cent in 2017, before accelerating to five per cent in 2019. “The banks are funded by stable and low-cost domestic deposits, mainly from households, a credit strength,” said Melina Skouridou, Assistant Vice President and Analyst at Moody’s. “We expect increasing banking penetration and increased remittances to spur deposit growth. Though government-owned banks have significantly increased their market funding over the last two years, this funding is mainly from regional banks and multilateral development banks, where refinancing risks are lower.”

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Good governance IS good business! Driving business performance through better risk management, corporate governance and compliance

eld on Wednesday, 11 October 2017, at the Crowne Plaza, Upper Hill, Nairobi, Kenya, Banker Africa’s Leaders in Banking Briefing, in partnership with Oracle, provided participants with a platform for dialogue and exchange of information on best practice in risk management and compliance. The briefing was attended by: Issac M. Nduvi, Head, Risk Management & Compliance, Credit Bank; Daisy Namayi, Compliance Manager, DIB Bank Kenya; Bamidele Olalekan Oseni, General Manager &Group Chief Risk Officer, I&M Bank; Charles Ireri, General Manager Operational Risk, Equity Bank; Kelevilin Kimathi, General Manager - Risk Management, Equity Bank; Gideon Mugendi, Compliance Manager, Gulf African Bank; Bernard Omondi Oketch, Senior Risk Manager, The Co-operative Bank of Kenya; John Matiba, Finance Manager, Century Microfinance Ban; Edwin Induli, Deputy Director, Risk Management & Compliance, NIC Bank; and Laban Omangi, Regional Compliance Director, Barclays Bank of Kenya. Robin Amlôt, CPI Financial, moderated the meeting, which featured a keynote address from Jared Osoro, Director of Research & Policy at the Kenya Bankers Association (KBA), entitled Looking to 2018: The

Importance of Compliance in the Kenya Banking Space. Taking a topdown approach, Osoro reviewed the current shape of and prospects for the Kenya economy, highlighting one unintended consequence of the Central Bank of Kenya’s (CBK) imposition of an interest rate cap—negative real returns on short-term Kenyan T-bills. Taking questions from the floor, Osoro also noted that the cap had resulted in significant growth in un[der]regulated shadow banking operations. Speakers suggested that regulators, both national and international, may ultimately struggle to provide the right regulatory environment partly as a result of playing a reactive rather than a proactive role. Simply put, the current round of regulatory updates, including the likes of FRTB, IRRBB, IFRS 9 and BBS239 find their roots in the financial crisis that occurred almost a decade ago. This means that regulators are preparing for the last crisis, not for the next one!

DOCTOR NO

It may come as no surprise but among the first topics highlighted in the open discussion that followed the keynote presentation was the perceived disconnect between ‘the business’ and the risk management and compliance functions within institutions, with the

latter seen as always saying, ‘No!’ to ventures and products proposed by business units. It was agreed that there is a clear and present need to address this disconnect, clarifying and promoting the actual value to the business functions that is provided by risk management and compliance, especially at a time when regulatory requirements and associated costs are only going to increase. Risk and compliance professionals must be prepared to ‘proselytise’ the fact that good governance IS good business, both internally and externally. Participants also agreed on the need to ensure the right matrices and business modelling is put in place not only to ensure proper risk management and compliance but also to improve the speed and efficiency of the analytical and decisionmaking process in order to control costs and contribute to business success. In exploring best practice solutions to risk data management and internal reporting procedures, it was clear that the preferred solution of a number of the institutions represented at the briefing was to embed risk and compliance practitioners at the operational level. These employees then report back to senior staff who, ultimately, further up the chain, are in a position to address strategic risk and compliance issues at management level. It was, however, also noted that further investment in risk data management and governance procedures is going to be necessary.

COMMITTEE COMMITMENT?

The Kenya Bankers Association operates a number of committees, including a Bank Fraud & Risk Committee and a Legal Affairs & Compliance Committee. A suggestion was put by participants at the briefing that the KBA consider reorganising its committee structure to establish a Risk & Compliance body in order to provide a proper focus on these areas of concern.

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happenings

Encouraging investment Connections between the Arabian Gulf and Africa took centre stage at the ALN Annual International Conference

n early October the fourth annual ALN Annual International Conference was held at the Park Hyatt hotel in Dubai. Held under the theme ‘Africa: Bridging the Gulf’, the conference offered more than 400 members from the global investment community a chance to network and gain insight on opportunities in the African continent. In attendance were UAE Minister for Culture, Youth and Social Development, His Excellency Sheikh Nahyan bin Mubarak Al Nahyan, Former President of the Republic of Nigeria, Olusegun Obasanjo and Former Mali Prime Minister, Dr. Cheick Modibo Diarra. In the leadup to the event Dr. Diarra said, “We are going to be covering a lot of topics. We are going to cover risk, private equity, investing, power and infrastructure, real estate, logistics and transportation, technology and innovation, merging and acquisition, capital raising, family owned businesses, and there’s a spotlight session on East, North and West Africa. It’s going to just be a tremendous conference with many things and we are going to do some of them in a different way.” HE Sheikh Nahyan bin Mubarak Al Nahyan, the Guest of Honour, said, “For most investors, acquiring first-hand knowledge of the African continent can be both costly and time-consuming. ALN is to be commended for bridging this gap by providing investors with detailed insights and local expertise.” He also highlighted the investment

Panels were held on a variety of subjects across the two-day event.

opportunities that the African continent possesses. The theme under which the conference was held, ‘Africa: Bridging the Gulf’, focused on the importance of encouraging investments between Arabian Gulf states and Africa. Panels were held to emphasise the importance of building, strengthening and maintaining these relationships. Dr. Greg Mills, Director of the Brenthurst Foundation, and HE Olusegun Obasanjo also presented their new book, Making Africa Work, which focused on how to ensure that the African continent can re-energise its economies through embracing market-friendly policies and ensuring sustainable growth beyond commodities.

Commenting on the conference, Atiq S. Anjarwalla, Managing Partner, Anjarwalla Collins & Haidermota, said, “Now in our fourth year of hosting the annual ALN conference, it is with great pride that we see how far we have come. Due to the success of the conference, and the strength of the deals that are struck here each year, we now attract hundreds of high-level delegates from across the African continent, the Gulf region and even beyond. “Today, we have been able to showcase a wealth of opportunities for investment in Africa, and tackled some of the issues that the continent faces. The event has been well-received by delegates, and we hope it has initiated an increasing amount of long-lasting business relationships.”

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opinion

Growing levels of youth unemployment is one of the most pressing issues on the continent says Higenbottam (EVERYTHING POSSIBLE/SHUTTERSTOCK).

Africa faces fiscal frustrations Growth is slower, recovery is expected in the near-term, but there are challenges to be faced, writes Edmund Higenbottam, Managing Director of Verdant Capital

arger non-bank lenders are to benefit from increasing international funding at a time when macro challenges and stricter bank regulation are headwinds. GDP growth in Africa (2.6 per cent expected in 2017, source: IMF) in headline terms remains robust compared to major advanced economies (1.7 per cent for the G7 group). While some cautious recovery is expected in the near-term, growth

is significantly slower than during the commodity price boom at the end of the last decade and the early part of this decade. Furthermore, at these levels growth is unlikely to be sufficient to enable governments in Africa to overcome the twin challenges of accumulated fiscal deficits, and population growth. Debt to GDP ratios in Sub Sahara Africa as a whole now stands at around 42.5 per cent versus 27.9 per cent in 2010, and the deficits

of the largest economies, for example South Africa (3.5 per cent of GDP), Nigeria (4.4 per cent) and Kenya (7.8 per cent), indicate that this trend is likely to continue in the medium-term. These fiscal imbalances are mirrored in many markets by growing external imbalances (current account deficits) and shortages of foreign currency. Certain governments, including Nigeria, Angola and Zimbabwe have imposed actual or de facto currency restrictions.

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At times these restrictions have prevented a predictable flow of debt service payments to foreign lenders. Population growth in Sub Saharan Africa (estimated to be around 2.7 per cent, source: World Bank), still exceeds GDP growth, notwithstanding the cautious recovery in GDP growth. Simply put this means less money to go round. More importantly it means growing levels of unemployment and underemployment as each new cohort of young people joins the labour market. This trend is one of the most pressing issues in the continent in its own right, and a cause of growing popular discontent. This factor is likely to have been a strong contributor to the increase in political instability in many parts of the continent, as political actors choose between populist and authoritarian responses to widespread discontent. Specialist financial inclusion funds in this environment are increasingly targeting loans to larger institutions. The financial inclusion funds are an investor base predominantly from Western Europe and North America, with estimated assets under management of $15 billion (source: Verdant Capital). As an investor base, they target investments in financial institutions in the developing world generally, especially those supporting broader financial inclusion (e.g. lending to SMEs or micro-enterprise, or supporting housing or education). Most investees of financial inclusion funds are non-bank lenders of one of description or other, but banks, especially new banks are increasingly accessing funding from this source. Given increasing macroeconomic risk, the financial inclusion funds, have in this environment targeted investments in larger institutions, with broader diversification of assets and of funding and often those with exposure across multiple countries. This flight to size is partly a strategy to mitigate macro-economic risks

According to Edmund Higenbottam, Managing Director of Verdant Capital, volatile economies and regulatory changes are impacting funding markets.

discussed above, and partly as a result of the explosive growth of the assets under management of this specialist investor base. Ten years ago, specialist financial inclusion funds had perhaps $2 billion of assets under management and net inflows, plus 10 per cent per year in recent years into this investor base have continued. As such portfolio management considerations alone have compelled larger average ticket sizes and the focus on larger borrowers. As an aside, an increasing portion of the investible universe for these funds are now regulated as deposittaking banks, in part as a result of the strategy to target larger investments. It is also in part as a result of non-bank lenders climbing up the regulatory hierarchy as a deliberate strategy (for example, Letshego in Namibia or Tanzania, GHL Bank in Ghana or Trustco in Namibia). Much has been written about Basel III and IFRS 9 and their impact on bank lending. It is important to remember that, especially in Africa outside South Africa, banks are large lenders to non-bank financial institutions and

other financial intermediaries. We estimate that around one-quarter of borrowings by non-bank lenders in Africa, outside South Africa, is sourced from banks. Basel III, and especially higher minimum common equity Tier 1 ratios mean the banks have to increase their lending rates (or cut staff costs) to stand still in terms of their return on equity. Equally, banks must either raise equity or reduce their risk weighted assets (i.e. loans books) in order to meet the higher Tier 1 minimum common equity. Other financial intermediaries who borrow from banks will then have to absorb this higher contribution to funding costs, by increasing their own lending rates (or again, cutting staff costs or reducing their expected return on equity). IFRS 9, by bringing forward provisioning on loans when advanced (rather than deferring credit provisioning until a credit event), has an impact on profits and therefore reducing common equity. This is magnifying the impact of Basel III. EY estimates the increase in provisioning to be 15 per cent as result of IFRS 9; a survey of British bankers for Euromoney estimated 50 per cent (although the latter estimate is widely seen as overstated). Furthermore IFRS 9 requires provisions to be estimated when initially advanced, meaning characteristics such as tenor and security are likely to weigh heavily in such estimates and therefore pricing. As such, the availability of longer-term and unsecured loans are likely to shrink. We view these changes in the structure of bank lending markets as creating an opportunity for financial inclusion funds to take up some of the territory in this value chain that the banks are likely to vacate. Furthermore, non-bank lenders with strong access to offshore funds may be able to capture market share from banks.

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Political and security risks stood out as important factors in the Risk-Reward Index (CREDIT: WHYFRAME/SHUTTERSTOCK).

Markets that make you look twice It isn’t a question of looking at Africa’s markets; it’s a question of looking harder

nvestors know that risk is reward’s evil twin. For investors looking at Africa, it can be difficult to tell the two apart. This is why Control Risks’ recent Africa Risk-Reward Index has provoked some interesting discussion about the relationship between the two in some of Africa’s most dramatic markets. The Africa Risk-Reward Index calculates a risk score and a reward score for each country. In this first edition, the Index tracks some countries

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which are indelibly on investors’ radars; and explores a few which tend to be overshadowed by the usual suspects.

NIGERIA

Nigeria and its energy sector continue to command attention—Control Risks’ Index puts the country’s reward score at 6.0, comfortably ahead of its peers. Nigeria’s charms, however, fade against a risk score of 7.3. Everyone is familiar with the backdrop against which Nigeria’s economic story is playing out. As much as risk and reward are constant companions, so too are politics and economics. President Muhammadu Buhari’s government is limping through its first term while militant attacks in the Niger delta have put a kink in oil production. Fewer oil receipts, the falling naira and higher inflation have dimmed Nigeria’s appeal. However, the Central Bank has not been unresponsive. It has wisely started to increase oil production and improve forex liquidity conditions. Control Risks believes that increased fiscal expenditure will start to boost economic activity in the second half of 2017. This spending plan, which the Government aims to finance by borrowing, will emphasise infrastructure development—a political priority as elections approach in 2019. “Views on Nigeria can tend towards the extreme,” said Daniel Magnowski, Senior Analyst at Control Risks. “Some businesses we talk to are so deterred by coverage of terrorism and violence, and what they feel are insurmountable problems of corruption, that wherever they look they see reasons not to work in Nigeria. Others are so drawn by the size of the potential market and the rewards that they can be tempted to overlook the risks. “When we’re talking about Nigeria we keep coming back to the phrase

‘challenging but manageable’ and it’s absolutely right, whether that’s in oil blocks, power stations, hotels or telecoms.”

SOUTH AFRICA

South Africa’s risk score is below the regional average at 5.0. So far so good, until you see that the reward score is even lower, at 4.8. Growing tensions among political parties and government

Long-term opportunities such as bountiful natural resources, a welleducated population and copious infrastructure needs should keep Zimbabwe on the monitoring list

officials have quashed consumer, business and investor confidence. Real GDP growth was only 0.3 per cent in 2016, the slowest since 2009. However, Control Risks urges investors to take a closer look. An expected improvement in the performance of the agricultural sector will combine with a recovery in the manufacturing sector to marginally improve GDP growth prospects. Control Risk s expects inflation to keep falling during the middle of the year, partly due to base effects, but also due to positive near-term fuel price developments, low

domestic demand and a resilient rand. “Political risk has become the most important element in South Africa’s economy in recent years, and as of writing economic prospects are closely linked to the outcomes of the ANC’s national conference in December,” said Elize Kruger, Senior Economist, Oxford Economics. “Although the country is currently trapped in a lowgrowth, low-confidence environment, investment opportunities still exist in defensive sectors like pharmaceuticals and telecommunications, and a highly liquid bond market that still offers attractive real yields.”

EGYPT

Egypt will test the most ardent optimist. The Index calculates its risk score at 6.0, reflective of President Abdul Fatah al-Sisi’s stable position–despite a series of economic and security challenges. However, socioeconomic grievances, a government crackdown on opposition and Islamist groups, and persistent militancy continue to dog its business environment and deter tourists. However, all is not lost. The country’s reward score of 5.5 reflects the measures the government has taken since mid-2016 to address its fiscal problems, and its willingness to address security and economic challenges to entice foreign investment. “When discussing Egypt, some of our clients are primarily concerned with the country’s security environment, while others cite its underperforming economy as an obstacle to operating there,” said Andrew Freeman, Analyst at Control Risks. “These issues present risks, but they also mask current efforts by the government to make Egypt’s business environment more attractive to foreign investors, especially those operating in sectors strategic for economic growth such as oil and gas, and power and utilities. With a population of over 95 million, cont. overleaf

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cont. from pg 17

Egypt is a significant player in the African market.”

It remains to be seen how far a state-driven development strategy can take Ethiopia.”

ETHIOPIA

KENYA

Ethiopia isn’t starved of attention. The East African nation attracted FDI worth around $3.2 billion in 2016; more than Nigeria and double the figure for Morocco. Ethiopia has maintained its position as one of the fastest-growing economies on the continent for more than a decade, and whetted investor appetite with GDP growth of 6.5 per cent in 2016. However, investors continue to be wary of the government’s meddlesome role in the economy. According to the Index, Ethiopia offers the highest rewards for investors with a score of 8.0. Economic growth is driven by an ambitious public infrastructure investment programme, and prospects are further supported by an abundance of natural resources and favourable demographics. The Index pairs Ethiopia’s high reward score with a risk score of 5.8, as tensions between and within member parties of the ruling Ethiopian People’s Revolutionary Democratic Front will complicate long-term planning and policymaking. “Ethiopia remains an investment conundrum,” said Jacques Nel, Senior Economist, Oxford Economics. “The country’s considerable potential and supportive policies for foreign investment in certain sectors are contrasted by restrictions on foreign participation in other sectors. “Many of our clients have shown an interest in Ethiopia, but the uncertainty surrounding the country seems to suppress risk appetite. Its development track record over the past two decades must be commended, and growth prospects remain positive, but it should also be acknowledged that due to base effects the country has in a sense benefited from lowhanging fruit.

With a reward score of 6.7, Kenya outperforms most of its African peers. Successive government efforts to prioritise openness to foreign investment have clearly paid off. Kenya has also achieved a period of strong GDP growth amid relative political stability. At the moment, fiscal concerns feed into the country’s risk score of 5.6, which reflects considerable room for improvement. The nature of Kenya’s

As much as risk and reward are constant companions, so too are politics and economics

political system, which remains closely tied to ethnic affiliation, also contribute to its higher risk score. High levels of corruption and pervasive criminality in urban centres are additional risk drivers. “The frequent comparisons of the 2017 Kenyan elections with the polls held in 2007 and 2013 showed that many investors tend to analyse Kenya through its past,” said Paul Gabriel, Senior Analyst, Control Risks. “One example I like to give is that President Kenyatta’s first term was marked by largescale public investment in infrastructure but government debt levels mean that this is unlikely to continue. Investors looking for opportunities in Kenya today are better

advised to try and tap the growing consumer market, for example through investments in the FMCG sector.”

ZIMBABWE

With a risk score of 7.8 and a reward score of 0.97, Zimbabwe is not for the faint hearted. Still, due to numerous long-term opportunities and the potential to gain a first-mover advantage, Control Risks warns investors not to overlook it. Longterm opportunities such as bountiful natural resources, a well-educated population and copious infrastructure needs should keep Zimbabwe on the monitoring list. Zimbabwe’s political battles spill over into its commercial realm, with the economic interests of various political figures targeted in legislation, acts of expropriation and corruption investigations instigated by their rivals. While these risks primarily affect local companies, foreign investors required to have local stakeholders are not immune. Zimbabwe’s economy continues to face seemingly relentless headwinds. Last year it showed a depressed growth rate of 0.6 per cent. “Many of our clients keep an almost constant eye on Zimbabwe, although only a few are yet willing to accept the risks that would accompany any investment,” said Barnaby Fletcher, Analyst, Control Risks. “Some of these risks are overblown by an international media that remains fascinated by the Machiavellian manoeuvrings of Zimbabwean politics. Others pose very real challenges. What most of our clients recognise, however, is the potential. Zimbabwe has already proved it can support manufacturing, agriculture and mining sectors significantly larger than it has at present. Once the current political leadership changes, those opportunities are likely to become a lot more accessible.”

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For more information please contact CPI Financialâ&#x20AC;&#x2122;s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net

BA bleed guide.indd 1

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Sound prospects Fuelled by a recovery in agriculture, the Moroccan economy looks set to return to historic growth rates

(CREDIT: PATRICE6000/SHUTTERSTOCK)

conomic growth for the North African country of Morocco was subdued in 2016. The IMF World Economic Outlook Database (April 2017) estimates that GDP (gross domestic product) growth in 2016 was 1.49 per cent. However, the country’s agriculture sector has rebounded strongly this year. Growth for 2017 is now forecast at some 4.35 per cent, a significant uptick, and more in line with historical trends. Poor rainfall was chiefly the reason for restrained growth in 2016. The sector contracted some 63.4 per cent in 2016 but cereal crop output is due to rise by 187 per cent in the current season, with a decline in 2018, according to Fitch Ratings. In July of this year, an IMF staff team visited to conduct discussions with the Moroccan authorities on the second review under the Precautionary and Liquidity Line (PLL) arrangement.

Nicolas Blancher, who led the team, said, “Overall, macroeconomic fundamentals and the prospects for 2017 are sound: following last year’s drought, growth is expected to rebound this year to 4.8 per cent, driven by strong recovery in the agricultural sector.” Non-agricultural growth and industry, driven by the automotive sector, has also seen some growth. Cyclical pressures have eased, with employment in the agricultural sector; lower food prices and Euro zone recovery have all contributed to this trend. The development of the Moroccan automotive sector has played a key role in Morocco’s industrialisation efforts, which have been aimed at diversifying the country’s economy and improving growth and exports over the medium term. In 2007 Morocco successfully attracted French car manufacturer Renault followed by PSA Peugeot in 2015 to help develop its automotive industry.

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This sector will benefit in particular should recovery continue in Europe. The country’s authorities still face challenges, however. Care needs to be taken to ensure that growth remains strong and stable, and avoids the volatility seen in 2016. Furthermore, the country also needs to tackle its high unemployment rate, at over nine per cent. In line with this youth unemployment also remains high at about 20 per cent, despite average economic growth of three per cent over the past five years. Standard & Poor’s argued earlier this year that one the reasons for these figures is the insufficient matching between the educational profile and actual labour market requirements, which has led to a higher number of unemployed graduates. The agency noted that these factors, in addition to the country’s oversized agricultural workforce, provide some explanation as to why Morocco’s GDP per capita (estimated at $3,050 in 2017) is amongst one of the lowest of the agency’s ‘BBB-’ rated sovereigns. Blancher added that unemployment was particularly concentrated amongst youth and women. Fitch notes that its GDP growth forecast for Morocco, at a 3.8 per cent average over 2017-2019, is higher than the ‘BBB’ median of 2.9 per cent. Furthermore, the agency added that the new six-party coalition Government remains committed to its predecessor’s industrialisation strategy, with a target of 23 per cent of GDP for the industrial sector by 2020, up from 18.5 per cent in 2016.

REDUCING THE DEBT

Furthermore, the Government has also confirmed that it is looking to reduce central Government debt to 60 per cent of GDP, down from 64.7 per cent in 2016, by 2021. Fitch stated that it expects to see fiscal consolidation to continue but to proceed more slowly than previously

Overall, macroeconomic fundamentals and the prospects for 2017 are sound: following last year’s drought, growth is expected to rebound this year to 4.8 per cent, driven by strong recovery in the agricultural sector. —Nicolas Blancher, IMF

projected by the Government. So far progress on reducing debt has been achieved mainly through containing current spending patterns and reforming energy subsidies, which helped to reduce the central Government deficit from 7.2 per cent in 2012 to 4.1 per cent in 2016. Although, 4.1 per cent was still higher than the Government’s initial target of 3.6 per cent of GDP, and only a small reduction from 4.2 per cent in 2015. Fitch forecasts that the central Government deficit will decline to 3.6 per cent of GDP in 2017, only missing the revised budget target of 3.5 per cent by 0.1 per cent. Whilst in 2018 the agency expects the central Government deficit to fall to 3.2 per cent, with a target of three per cent, and down to three per cent in 2019. “The fiscal deficit is projected to narrow to 3.5 per cent of GDP by 2017,

due to stronger revenue performance and contained spending. The IMF team welcomed the authorities’ plans to continue fiscal reforms, especially towards a more equitable and fairer tax system, and to reduce public debt to 60 per cent of GDP by 2021,” said Blancher. “These efforts are critical to increase the fiscal space needed to reduce poverty and to promote employment through public spending, in particular investment and social programmes targeted towards the poorest segments of the population and that help to reduce inequalities.” Fiscal deficits had increased to over six per cent of GDP in 2011 during the Arab Spring, with high oil prices being a contributing factor. S&P note that this led to wider fiscal deficits and annual average changes in general Government debt of more than six per cent of GDP in 2011-2013. cont. on page 23

IMF AND BANK AL-MAGHRIB EXTEND INVESTMENT AGREEMENT TO SUPPORT IMF’S LENDING TO LOW-INCOME COUNTRIES The International Monetary Fund (IMF), as Trustee of the Poverty Reduction and Growth Trust (PRGT), has entered into an amendment of its 2012 investment agreement with Bank Al-Maghrib, through which Morocco committed to provide a subsidy contribution of SDR 1.1 million to the PRGT. To achieve this goal, the investment agreement with Morocco was extended by up to five years.

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MOROCCO

by the numbers PRIMARY MARKETS I SHARE IN %

POPULATION

GDP GROWTH 10%

34.15

8% 6%

million EXPORTS

4% 2% 0%

Source: IMF World Economic Outlook Database (April 2017) – estimated

LONG-TERM TRENDS I 3-year averages Population (million)

2013-15

2016-18

2019-21

33.2

34.2

35.1

106

109

132

3,210

3,202

3,761

3.9

3.1

4.2

GDP (USD bn) GDP per capita (USD) GDP growth (%)

-4.7

-3.5

-2.7

62.9

64.6

61.9

1.3

1.8

2.0

Fiscal Balance (% of GDP) Public Debt (% of GDP): Inflation (%): Current Account (% of GDP):

-5.0

-3.6

-3.0

External Debt (% of GDP):

40.0

44.1

41.1

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa–October 2017

EU-28 12.5% Other Asia ex-Japan 8.5% China 30.0% India 15.5%

Other MENA 8.6% United Arab Emirates 5.7% SubSaharan Africa 5.6% Other 13.6%

100

Projected in 2017

Projected in 2018

Source: IMF World Economic Outlook Database (April 2017) – estimated

IMPORTS

EASE OF PAYING TAXES

Ranked 41 out of 189 Other EU-28 19.5% Spain 22.1% France 19.7%

Asia ex-Japan 9.8% Ohter 28.9%

Source: FocusEconomics Consensus Forecast SubSaharan Africa–October 2017

ECONOMIC STRUCTURE GDP by Sector I share in %

4.35% 3.93%

% 49.3 total tax rate

GDP by Expenditure I share in %

2007-09 2010-12 2013-15

120

2007-09 2010-12 2013-15

Agriculture

Net Exports

Source: PwC Paying Taxes 2017 analysis

Investments

COMPETITIVENESS

Manufacturing

Other Industry

Government Consumption

Services

Private Consumption

-30

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa-September 2017

Ranked 70 overall

Ranked 83 for financial market development

out of 138 Source: Global Competitiveness Report 2016-2017/ World Economic Forum

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cont. from page 21

The subsidies bill has since been cut significantly, however. Measures have also been taken in other areas to promote slow growth in current spending, such as limiting public salary increases. In July 2016 Parliament approved the state pension system reform which included an increase in the retirement age to 63 from 60 by 2022 and higher contributions from workers and the state. S&P state that this reform will ease longterm pressure on public finances.

BANKING

Morocco’s banking sector is dominated by three banks which together represent two thirds of the country’s banking assets. Attijariwafa Bank, Groupe Banque Centrale Populaire (BCP) and BMCE Bank have similar banking strategies and have all sought to expand into Sub Saharan Africa in order to bolster growth. Of the three, Attijariwafa and BMCE have the highest proportions of loans sourced from the region at 23 and 25 per cent respectively. BCP has a more modest exposure at 12 per cent. All three banks have increased their operating profitability off the back of these foreign operations, which focus primarily on corporate banking. BMCE sources 48 per cent of its net banking income from Africa, in comparison to 28 per cent for Attijariwafa and 17 per cent for BCP. Moody’s Investors Service noted that Attijariwafa’s net profit ratios are higher than those of its peers, largely due to its stable and lower operating costs, and a higher proportion of its income coming from fees and commissions in comparison to its peers, coupled with lower levels of loan-loss provisions. “All three banks face elevated levels of problem loans, but Moody’s expects loan performance to stabilise within the next 12 to 18 months at all three banks as Morocco’s economy strengthens

Economic growth will partially depend on Euro zone recovery and increased exports (CREDIT: ESB PROFESSIONAL).

1 I GDP I INFLATION IN %

2 I INFLATION IN %

Morocco

MENA

Morocco MENA World

0 2000

2005

2010

2015

2020

0 2000

2005

2010

2015

2020

Source: FocusEconomics Consensus Forecast Middle East & North Africa—October 2017

and the banks’ get better at managing risk at their foreign subsidiaries,” said Olivier Panis, VP Senior Credit Officer. Moody’s added that Attijariwafa had the lowest ratio of non-performing loans to gross loans among the three banks at seven per cent as of

December 2016, compared to 7.7 per cent for BCP and 8.3 per cent for BMCE. Both Attijariwafa and BCP are best positioned of the three to weather additional stress in their asset portfolios. Problem loans represent 36 and 39 per cent of the banks cont. overleaf

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cont. from page 23

shareholders’ equity and loan loss reserves respectively, compared to 54 per cent for BMCE. Furthermore, BCP has a stronger funding profile than the other two banks owing to its larger branch network which allows it to collect on a larger deposit base, meaning that the bank is less reliant on market funding in comparison to its peers. Blancher added that, “The IMF team welcomes the progress made in strengthening financial sector soundness, and encourages the authorities to accelerate structural reforms to improve the business climate and governance, combat corruption, reduce unemployment, particularly among the youth, lessen regional and social disparities, and reform the educational system to create more skilled workers.”

AFRICAN UNION

In January of this year Morocco re-joined the African Union after 33 years. The country originally left when the continental body recognised the independence of the disputed territory of Western Sahara. Morocco’s King Mohammed VI announced his desire to see Morocco re-join the Union at the 27th African Union summit in July 2016. Following this the King began an official tour of Tanzania, Rwanda, Ethiopia, Madagascar and Nigeria, all of which are among Morocco’s less traditional trading partners amongst the West African francophone bloc. This work has already began to pay off, with work having commenced on a gas pipeline between Morocco and Nigeria, and agreement having been signed with Ethiopia worth EUR 2 billion to build an industrial site to aid the East African country’s plan to become self-sufficient in agricultural fertilisers by 2025. Morocco’s re-admittance to the African Union, previously the only country in Africa

MOROCCO SECURES $25 MILLION LOAN FROM CLEAN TECHNOLOGY FUND FOR HYBRID SOLAR PROJECT Earlier this year Morocco received approval of a $25 million loan from the Climate Investment Funds’ Clean Technology Fund (CIF CTF) for a project to generate solar power through a hybrid Concentrated Solar Power (CSP) and Photovoltaic (PV) solution. The African Development Bank (AfDB) and World Bank are also supporting the Midelt Phase I Concentrated Solar Power Project, with an additional allocation of $25 million in CTF resources. The project consists of two separate CSP plants, each with 150-190 MW CSP capacity and a minimum of five hours of thermal storage. The envisaged installed capacity of the PV component could reach approximately 150-210 MW, making the total capacity of each of the proposed plants 300-400 MW and the total capacity of this first phase 600-800 MW. “In 2015, the world saw an important shift in CSP investment from the developed to the developing world, particularly in Morocco,” said Anthony Nyong, AfDB’s Director, Climate Change and Green Growth. “Morocco’s path-changing Noor CSP programme under CTF, for which we serve as implementing agency, has been a critical element of that shift. This new project, which will be modelled on the Noor operational and financial structure, will increase the development of solar energy and further help diversify the country’s energy mix and enhance its energy security. We believe that the project can serve as a model for other countries in the region and beyond.” This project will also aid Morocco in attempting to achieve its own goal of achieving 52 per cent of installed capacity from renewable energy by 2030. Furthermore, the plan will also help alleviate some of the unemployment problems the country is facing by providing some 30,000 jobs. “Until now, CSP has been the dominant renewable energy technology assuring electricity during peak hours and by adding a PV component, we expect enhancing the reliability of the power plant,” said Leandro Azevedo, AfDB’s CIF Program Coordinator and Senior Climate Finance Officer. “The combination of these two technologies will allow Morocco to optimise the dispatch of generated power during the daytime by ensuring that the utilisation of the CSP component can be maximised during night-time through the use of thermal storage.”

not a member, has already begun to help the country’s economy. Overall, the Moroccan economy looks set to be on the track for improvement. The drought that severely hammered the economy’s growth in 2016 has dissipated, whilst the Government is looking to further diversify the economy and reduce the effect of a similar event and overall growth looks set to continue. Challenges still remain, however, particularly in the realm of unemployment.

Protests which began late last year and continued throughout 2017 suggest that social tensions continue to be exacerbated in the face of reforms. However the country’s weathering of regional social and political upheaval during the Arab Spring in 2011 is something of a testament to the overall stability of the Morocco. As such, we should expect to see a continued environment of macroeconomic and political stability.

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country

governance

Reducing risk with regulatory reform The African continent is dipping its toes into corporate governance and many countries are implementing far-reaching regulations, according to Dawda Jawara III, Legal Director at Clyde & Co

ountries in Africa should be providing good governance to improve the investment landscape–this is something that needs to be driven at a continent level, as well as at an individual country level. In East Africa, the East African community has converged economically and developed closer economic ties between countries like Uganda, Rwanda, Kenya and Tanzania. However, that is not the case in West Africa. “Broadly speaking, if we are talking about investment policy, there is more of a chance that that can be dealt with in a group sense in East Africa, than in the west. Having said that, we are far away from the European, model, where you have common directives that are applied in member states. In an African context it is all very much being driven by sovereign governments and there are a bunch of examples of that this year,” said Dawda Jawara III, Legal Director at global law firm, Clyde & Co. There are two side to the governance coin however, firstly is in-country protectionism, designed to improve a local company’s chances of entering the local economy. These measures are implemented by the government of the country, often to protect natural resources

from international influence. On the other side of the coin you have got the country’s investability or ‘doing business’ ranking, which is how foreign investors look at in-country investment opportunities. “If you look at Nigeria for example, in certain industries they have been extremely protectionist. From a foreign investment perspective, you look at the cement industry in Nigeria, it is only open to locals, and any foreign participation is highly taxed. Now, you would look at that and in the classic ‘doing business’ rankings, Nigeria would not probably rank so high, but actually, it has meant that the local cement industry has boomed. Now you have local companies like Dangote Cement and others that have flourished, and otherwise may not have, but for that policy,” said Jawara. On the other hand, according to Jawara, there are examples of in-country protectionism, such as in Kenya at the moment. Under a new Kenyan law, lending rates are now capped at four percentage points above the Central Bank’s benchmark rate, which is 10.5 per cent, while deposit rates must be at least 70 per cent of the benchmark rate. Some banks are charging above 18 per cent above cap for loans while deposit rates are often below five per cent.

“That is, from my point of view, short sighted and actually hampers the growth of the banking system which is the fuel for the economy,” said Jawara.

WHERE IS THE INVESTMENT COMING FROM?

Trade in Africa is still largely limited to international trade into the continent. Sadly, trade within Africa is still limited due to logistical issues, such as underdeveloped airports and ports, poor road networks, and complications around import and export rules, regulations, and paperwork. “A lot of parts of Africa are oddly divided where you have English speaking countries next to Francophone countries, so there are linguistic barriers, and barriers of infrastructure and, unlike in Europe, it just is not easy or cheap to drive goods from one country to another. Our ports infrastructure needs to be developed, airports on the continent are improving. I think a lot of the joinedupness that could be enforced at a regional level is not happening, and a lot of the time it is administrative things like having the same format of documents in various ports and customs, and reducing the number of checkpoints and customs points between countries,” said Jawara. These issues need to be sorted out on a regional level to allow African countries to tap into the wealth of goods and services from neighbouring countries.

KEY REGULATIONS

Entities such as Economic Community of West African States (ECOWAS) or the East African Community (EAC), or indeed the African Union itself can write papers and can make suggestions about what rules and regulations around governance should be put in place, but it is up to sovereign governments to enact policies or not. “I think what you will see is people start forum shopping. For example, Ghana has traditionally been good at

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enacting legislation that is friendlier for foreign direct investment. So, even though Nigeria is the bigger economy, you have seen a disproportionate–compared to the size of the economy –amount of foreign direct investment into Ghana,” said Jawara. One of the pieces of legislation that has caused this investment boom is the Ghana Collateral Registry, which is aimed at streamlining the credit delivery system in the country. The Collateral Registry is a body established by Parliament that is mandated to register secure loans otherwise known as charges and collaterals, which borrowers use to obtain credit facilities from lenders, according to the Bank of Ghana. This new legislation means that banks and lenders can access a record on assets used as collaterals in the country, and take possession of such assets in the event of a default. In addition, this registry allows businesses, SMEs in particular to use an asset to secure financing from a bank or lender. “It is probably no coincidence that in 2017, Nigeria has done the same [as Ghana]. We now have the Nigerian Collateral Registry Act. That means immovable goods, things like machinery, or even accounts receivables can be registered so that lenders are sure that their security interests are registered. Anyone who wants to have additional security on those items are given notice they can look to the registry as is the case in more developed countries, and in turn that reduces the cost of finance, that reduces uncertainty and should, in time, allow for more capital to be raised by SMEs,” said Jawara. “Was that a policy that was instituted by ECOWAS from the top down? No, but the way the market works, if one country does it and then it works, then other countries can follow.”

REGULATION MILESTONES

There have been further positive developments in the governance landscape in Kenya with a new Bribery Act, launched in 2016, which is largely modelled on the UK Bribery Act. “For me the new bribery act is a positive, because as soon as you hit the African continent, people feel like the legislation in respect to bribery and corruption is less onerous [than Europe] and entities may feel like they can get away with more. That legislation is going to be a positive trend around the EAC and around the continent as well, hopefully. Most countries have something like that in place, but the Kenyan legislation is quite wide-ranging,” said Jawara. On the flip-side, in Tanzania there has been a range of legislation implemented in 2017 around natural resources. For example, the Tanzanian Government has put in place legislation that limits the amount of natural resource-related earnings that foreign companies can hold in foreign banks. “The Tanzanian Government prohibits proceedings relating to natural resource disputes in international arbitration centres, which means any arbitration centres outside Tanzania. The reasons these policies have been put in place may link to political leanings of the current government. If you are talking from a technocrat’s perspective, anyone looking at that would tell you that, for example, a prohibition on international arbitration just would not pass a lot of credit committees. I think that will have a negative impact on investment in the country. To put it bluntly, I think if politics could be kept out of policy as much as possible that would be a good thing,” said Jawara. “I think it is good that countries like Tanzania are testing

the water and seeing how far they can go with that legislation, because in the past, a lot of African countries were dictated to, particularly when a lot of economies were tied to IMF restrictions and World Bank restrictions and that sort of thing, thankfully we are a little bit away from that now. I think still a balance has to be struck.”

WHAT TO WATCH OUT FOR

Different countries in Africa have developed policies around corporate governance in different ways, and both the protectionist approach and the ease of doing business approach can be successful. “If we look at Ethiopia, they have taken on an extremely protectionist regulatory environment, anything related to financial services or telecoms and anything natural resource related are completely outside the scope of foreign investment and have been for a long time. Is that a good thing or a bad thing? Ethiopia is growing at seven to eight per cent and is one of the better performing economies on the continent. So, that cannot be terrible, but I think industries are being opened up in a very slow and deliberate fashion and government has taken on an extremely muscular role in controlling how, and when various industries are opened up to the public. It is not to say Ethiopia is completely protectionist,” said Jawara. Ethiopia is currently working on opening up its hospitality sector, and there are several global-branded hotels opening up in the country. There is also a growing area of infrastructure development, where foreign investment is involved. “I would say [for implementing corporate governance policies] have an identity, have a plan and stick to it over the long term,” said Jawara.

www.bankerafrica.com

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study

Building a banking partnership Mozambique-based Moza Banco is building a stronger customer relationship, onboarding the unbanked and providing strong valuepropositions for its customers, we speak to Moza Banco Executive Chairman, João Figueiredo

hat is the financial climate of the Mozambique economy?

Mozambique is known as one of fastest growing economies in the world. However, several factors combined at local and global levels, beginning last year has meant a slight slowdown in the country’s economic growth. The economic outlook for the coming years is optimistic, since an increase in production is expected especially in the extractive industry, and there is expected to be a recovery of coal prices in the international market. Mozambique will certainly regain its prominent position in the region’s economies. It should be noted that the current economic and financial situation of the country has been affecting the performance of the banking sector, reflected in the slowdown in the levels of growth of deposits and credit in the economy. However, it is expected that starting in 2018, the financial system will resume the previous levels of growth seen before the economic crisis of 2016. During the first half of 2017, we observed a favourable evolution of inflation and exchange rates. In a nutshell, Mozambique’s economy has proven to be resilient. The financial climate is very good, ever competitive, dynamic and attractive–offering numerous opportunities.

Moza Banco Executive Chairman, João Figueiredo believes the Mozambican economy will show better growth in 2018.

Since taking on the role of Chairman and CEO in July what have your key strategic aims been? I was appointed by the Central Bank as Moza Banco interim CEO on 30 September 2016. Taking into account the Bank’s situation, the first and the main mission of our Board was to avoid systemic risk, then, stabilise the Bank, identify the main issues to be addressed, and define the best solutions to be discussed with the Central bank and the Bank’s shareholders. Having successfully attained these goals, with the recapitalisation process being completed in just nine months,

the subsequent step was to put Moza back in the place it deserves, which is among the biggest banks in the country. The business plan approved by the shareholders in the last General Assembly brought a new strategic positioning for the Bank, based on some fundamental pillars which reflect our aims. First and foremost, we want to be a client-centred institution that will take on a new DNA: The DNA of a relational bank, inspired by the client as the centre of our strategic positioning. It is in the client that we are inspired, and it is from him that we will design our activity. Second, offering tailored products and services–we will be able to have a different and more competitive approach, with the aim to attend the specific needs of each market segment. The third pillar is our continuous commitment to improve client experience and service levels through innovation and technology; last but not least is ‘quality’ as a fundamental pillar that should guide our performance.

Have you faced any specific challenges in pursuing this vision? From my past experience leading important institutions in the Mozambican financial sector, this is not an easy task. It is a process. We still have a long way to go but I am convinced that there are all the material conditions to successfully implement

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this transformation. There is a huge human potential, and we have in place modern and innovative infrastructure systems and technology. With these tools, but mainly with the very talented people that we have at Moza, I am pretty sure that we will succeed. We have demonstrated our resilience, and proven that with determination and persistence it is possible to overcome any challenges.

What does Mozambique have to offer for investment? As an emerging economy, Mozambique is a country full of opportunities ranging from agriculture, fishery, oil and gas, infrastructure, mining, manufacturing industry, transport and communications, to tourism. The countrys geostrategic position allows easy access to the main regional and international markets. I always suggest that investors must view this country as a platform with around 26 million people from where they can produce and work with the surrounding markets. The domestic conditions in terms of logistic, legal framework and business environment are getting better. It is important to mention that the private sector, along with the Government has been stimulating a process of reforms aimed at improving the business environment in the country. These reforms aim to help Mozambique to become ever more attractive to both national, and foreign investment, allowing companies that operate in the country to flourish and make an increasingly significant contribution to the country’s development.

How are you onboarding the unbanked? Moza Banco has the third largest branch network in the country, but, approximately 20 per cent of the population has a bank account. We are aware that this process of bancarisation

cannot only be achieved through the physical expansion of our branches. It should be a combined process, with a strong focus on electronic channels or digital banking, and through widening the offer of products and services that meet the needs and concerns of local populations. That is definitely the way forward. Nevertheless, it is important to ensure that the products and services are delivered at an affordable price to potential customers, with the same level of quality and efficiency in line with the best practices in the market. As I previously mentioned, technology and innovation are the pillars that will sustain our activity in the coming times. We believe that they can transform drastically the way people access financial services. We rely on it to extend the reach of financial services we provide, thus serving the nation’s unbanked population. Please note that Moza is known as an innovative Bank and a reference in Mozambique and Southern Africa, having been recognised twice by Banker Africa for the type of solutions we bring to the market and to our customers. We want to keep that status.

Are there any key product offerings that Moza Banco offers in the Mozambique market? We are universal bank and, as such, we offer specific and innovative solutions tailored to meet the needs and concerns of our customers and the market in general. As previously mentioned, Moza is in a structural change of its ‘DNA’. We believe that the difference today will be made not by the number of products or services we present, but by the relationship that we are able to build with the customer and the market. Relational banking is based on how we will be able to deepen our involvement with the customer. More offers do not mean better offers. For us, the offer we will have for our

customer has to be a consequence of the relationship that we are able to build with him. Creating a strong and consolidated relationship with the customer is, in addition to creating loyalty bonds, synonymous with greater transactional penetration, or synonymous with increased cross-selling. We have to serve our customers with quality and distinction, and for this, we are working to create services that distinguish the customer, create products that meet their requirements and needs and transform society. That is our value proposition.

What is your personal management philosophy? I personally like to think globally and adapt my performance to local conditions. Navigating through state-ofthe art technology is important but not a decisive factor. Internally, participatory and engaging management is for me one of the main pillars of success in modern organisations. The main resource institutions nowadays have is, indeed, the human resource, and with it we must differentiate our position in the market. Having a management team and all the company staff involved and committed to the culture of your company is equivalent of having a very strong advantage that can hardly be surpassed by competitors. Regarding the enterprise culture, I emphasise what I have already said: organisations, as entities who want to offer a product or provide a service, have to put in the relationship, with the customer the focus, and the essence of their nature. I do not sell a product just because it is part of a range of products that I have on the shelf, but rather because the customer wants to have that product. Feel, live and absorb the CLIENT’s own perspective, and focus our activity on what his real world is will make us a different bank, a relationship bank, a true ‘life-long partner’.

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Saying goodbye to sanctions Faisal Islamic Bank (Sudan) is looking to the future and developing new strategies to attract regional and foreign investment opportunities post the sanctions era, according to Albaqir Elnoury the General Manager of Faisal Islamic Bank (Sudan)

The lifting of economic sanctions on Sudan will play an important role in the improving the Sudanese economy (CREDIT: CLICKSAHEAD/SHUTTERSTOCK).

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aisal Islamic Bank (Sudan) has stepped up its regional and international banking strategies in response to the US decision to lift 20 years of economic sanctions against Sudan. The decision to lift the economic embargo is an important step for the Sudanese economy in general, and particularly for the banking sector. It will enable the Sudanese banking sector to practise its natural

operations at a regional and global level, which will enable the Sudanese economy to take a new step towards growth. Since the embargo was lifted, there are many Arab and international banks that have started building contacts with Sudanese banks, and there have been reciprocal visits. Banking and financial transactions have started operating across countries that were prohibited from working with banks in Europe and the Middle East. Lifting the embargo will restore confidence amongst the investors and clients utilising Sudanese banks, as well as restoring local bank confidence in dealing with international and regional financial institutions. The sanctions being lifted will also open the door to donor countries interested in working in the Sudanese economy. Furthermore, Elnoury said lifting the ban will stop losses by the Sudanese banking system, which stemmed from the use of a basket of currencies parallel to the US dollar, to complete its banking operations. The return of the banking system would also result in the use of the US dollar settlement of commercial transactions with exporters from Sudan to the global market. Despite the global and local changes, Faisal Islamic Bank Sudan (FIBS) has remained a pioneer in all areas of banking industry. This has been evident in the Bank’s advanced classifications and achievements in the Islamic, African, and Arab banking industry at all levels, including the award of the Best Bank in Corporate Finance in Africa, awarded by CPI Financial’s Banker Africa for the fourth year in a row. FIBS has also been awarded three ISO certificates of conformity (ISO 14001) (ISO 9001), as well as the Occupational Health and Safety Management System (OHSAS 18001), granted by international companies and accredited by Germany’s National Accreditation Body (DAKKS), the United

Kingdom Accreditation Service (UKAS), and QA technic. Faisal Islamic Bank Sudan (FIBS) is the only institution in Sudan with these certificates. The performance of FIBS during 2016 saw significant development. The total consolidated budget of the Bank increased to SDG 15,676.5 million compared to SDG 12,454.2 million in 2015, an increase of 26 per cent, due to the significant development of the Bank’s resources, including increasing deposits by 26 per cent and property rights by 16 per cent. The increase of dividends for investment deposit holders and shareholders has improved the confidence of the Bank’s investors, meaning that they kept investing in the bank, leading to increase the profitability and liquidity ratios. The Bank’s total revenues rose to SDG 877.2 million compared to SDG 717.4 million in 2015, an increase of 22 per cent, due to the increase in returns on banking services, as well as the improved return on investment. The Bank earned SDG 650.2 million in 2016, compared to SDG 533.9 million in 2015, an increase of 21.8 per cent due to the improved ROI, which enabled the bank to distribute the highest dividend among the banks working in Sudan to the holders of investment deposits for 2013, 2014, 2015 and 2016. The bank has designed a flexible strategy to exploit the opportunities relating to the decision to lift economic sanctions designed to attract investments, and capital from foreign funds that are interested in investing in Sudan. Sudan offers these investors attractive new investments due to its diversification, and the availability of natural resources. In addition to the Bank has focused on financial inclusion in response to the directions of the Central Bank of Sudan through geographical spread and the development of banking technology, since last year.

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sme

financing

MSMEs play an increasing role in creating jobs across Egypt, but access to financing for them remains tough (CREDIT: ABDOABDALLA/SHUTTERSTOCK).

Banking in Egypt With a long standing tradition in extending corporate and investment services over a span of a half a century, Arab African International Bank is progressing in advancing sustainable corporate services in Egypt

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FC, a member of the World Bank Group, provided a $100 million loan to the Arab African International Bank (AAIB), to help the bank scale up its lending operations to small and medium enterprises and build its sustainable energy finance portfolio in response to increased energy bills for many companies and SMEs. About $50 million will be earmarked for SMEs to support the bank’s strategy to significantly increase its lending to smaller businesses. The remaining $50 million will be earmarked for introducing credit lines that support energy efficiency, helping businesses that need to make capital investments to refurbish or renovate existing operations to reduce energy costs. “Small and medium enterprises are at the heart of driving economic growth so we are delighted to be able to continue to expand our lending to these businesses,” Hassan Abdalla, CEO and Vice Chairman of AAIB said. “We are also looking forward to expand our services by offering new SEF products to help our clients reduce energy costs, improve their competitiveness, and help mitigate climate change.” The SME sector accounts for approximately 25 per cent of Egypt’s GDP and about 75 per cent of total private sector employment. Despite this, a significant number of SMEs remain outside formal channels, with SMEs loans representing only around five to 10 per cent of total lending. “While micro, small and medium enterprises (MSMEs) continue to play a dominant and increasing role in creating jobs in Egypt , access to finance remains a significant challenge for many,” said Mouayed Makhouf, IFC Director for the Middle East and North Africa. “This loan will help a strong bank increase its reach to smaller businesses and encourage other financial institutions to follow suit, while also helping to boost energy efficiency in Egypt.”

Between fiscal years 2011 and 2016, IFC’s investments in Egypt totalled close to $1.5 billion, including financing mobilised from other investors. IFC’s investments have been designed to support Egypt’s private sector, create jobs, and spur growth, all considered vital in the country. The loan complements AAIB’s efforts in the field of sustainable finance. Being a trendsetter in the Egyptian banking sector in embedding sustainability policies and practises in its daily banking traditions. This loan further strengthens AAIB’s products efficiency in this emerging field.

INFINITY 50 PROJECT

AAIB led the Egyptian market in granting credit facilities to participants in the feed-in tariff programme for renewable energy companies with EGP 300 million. It is the world’s largest solar photovoltaic generation park in Egypt in the framework of the Egyptian government’s plan to generate electricity from renewable energy sources.

Hassan Abdalla

The Infinity 50 Solar Park will comprise a 64.1 MWp solar array over an area of 98.6 hectares with almost 200,000 solar panels mounted on a state-of-the-art horizontal tracking system. Once operational, the plant is

Small and medium enterprises are at the heart of driving economic growth so we are delighted to be able to continue to expand our lending to these businesses. – Hassan Abdalla, CEO and Vice Chairman of AAIB – The project was approved by the Egyptian Electricity Transmission Company on 6 March 2017, confirming financial close under the first round of the Egyptian Feed-in Tariff (FiT) programme. As part of one of the largest utility-scale grid-connected solar power complexes in the world, the project represents a landmark in the development of renewable energy infrastructure in the MENA Region.

expected to produce over 110,000 MWh per year, equivalent to the electricity required to power almost 69,000 homes, while preventing over 1,293,000 tonnes of CO2 emissions in the course of its 25-year lifetime. The project is part of the Benban solar development complex with a total capacity of up to 1.86 GW, which will be one of the largest solar generation facilities in the world when completed.

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CIB: Addressing SMEs needs in Egypt CIB has come up with several strategies to help SMEs get the services and support they need according to Hisham Ezz Al-Arab, Chairman and Managing Director, Commercial International Bank (CIB)

ow has Egyptâ&#x20AC;&#x2122;s new investment law of 2017 affected the countryâ&#x20AC;&#x2122;s banking landscape?

The new investment law, in addition to the other important economic reforms the Egyptian Government has implemented, has eased numerous structural roadblocks and red tape to attract both domestic and foreign investors. It includes significant tax incentives for investors, not only for mega projects, but also for small enterprises as well. The ensuing investment inflows will stimulate job creation and, ultimately, the economy will immeasurably improve. The banking sector, which is the strongest in the economy, is well-positioned to benefit from the opportunities that the new investment climate will provide, including pent-up corporate demand. Furthermore, the tax incentives of the legislation apply to SMEs as well as large corporations, providing meaningful incentives for them to join the formal economy, which is therefore a tremendous opportunity for banks.

In what way has CIB sought to differentiate itself in the marketplace? The bank directs all of its efforts to provide the most efficient, current and

Hisham Ezz Al-Arab

seamless experience for our customers in a safe and secure environment. The strategy to achieve this goal rests with our commitment to technology. This is where CIB has differentiated itself, particularly in our investment in digital platforms, versus traditional channels, which has led to the launch of many

significant products such as the Smart Wallet and CIB Mobile Banking App. Moreover, data management plays an enormous and vital role in meeting our customersâ&#x20AC;&#x2122; needs. We are an undisputed first-mover in the banking sector in this regard. Data analytics is enabling us to identify with precision

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the needs of the retail customer and deliver the right solutions. This is an enormous value proposition for the customer. The potential to drive sales, boost retention, and improve service of our customers no doubt will significantly impact our growth prospects and enable us to maintain our competitive edge. A critical component of our technology strategy is our effort to provide our customers with a safe banking environment. To that end, we have implemented a comprehensive cybersecurity strategy that is aligned with international standards and best practises to further strengthen and enhance the bank’s cybersecurity posture. The strategy includes significant investments in both technology and human capital. We were the first Egyptian bank to establish a Security Operations Center (SOC), to monitor, assess and defend our enterprise information systems on an ongoing basis.

What are the key financing needs that SMEs face in Egypt? Employing around 80 per cent of Egypt’s working population, SMEs are the country’s main engine of future economic growth. Their needs include financing solutions, cash management solutions, and most importantly, e-business and digital products that enable them to manage their businesses whenever and wherever they are. Importantly, because the majority of these businesses are still not part of the formal economy, there is a need for relationship bankers who can educate them, hold their hands on every step of their development, and provide critical financial advice.

What has CIB done to address these challenges? CIB was the first bank to provide a comprehensive, integrated collection of services for this critical segment

through its Business Banking effort. Business Banking has developed comprehensive business programmes and products that address the financial needs of these clients and support their growth. Unlike other SME service providers, CIB provides a full-fledged, integrated collection of financial and nonfinancial services for this dynamic segment to address their needs. While we do believe that credit facilities mainly support enterprises having financial gaps by granting them access to finance, there are many other challenges facing SMEs throughout

enjoy a distinctive experience, using smartphones, tablets, or laptops. Additionally, Business Banking offers high-quality trainings and workshops for its customers, in partnership with other reputable financial institutions, such as IFC, EBRD and EBI. This training is another important vehicle to support our customers’ business development and take them to the next level.

How has CIB managed the risk inherent with financing SMEs? CIB has an established record in serving this sector and has developed the business carefully and steadily.

Employing around 80 per cent of Egypt’s working population, SMEs are the country’s main engine of future economic growth. Their needs include financing solutions, cash management solutions, and most importantly, e-business and digital products that enable them to manage their businesses whenever and wherever they are. – Hisham Ezz Al-Arab –

their development stages. We focus on the challenges of managing cash cycles, better accessibility to accounts and building business plans, at the same time as we help develop bundles of financial and non-financial solutions. Our SME customers also benefit from the digitalisation of our services which allow them to conveniently bank 24/7 through their preferred channels, better manage their finances and

We have targeted those customers whom we believe have solid marketing, management, and operational strategies. The benefit of working closely with our SME customers to develop their businesses is that we understand their specific challenges and can therefore provide them with appropriate solutions. This strategy has resulted in a 50 per cent annual growth rate of our Business Banking area.

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trailblazer

Building the businesses of Africa

Gilles Komi Maglo

Business and financial consultancy fintech developer MES & DAK is bringing business to the micro entrepreneur

intech developer MES & DAK Corporation, is not targeting the big companies, but rather focusing on the micro SME (MSME) and SME sector to help bridge the $380 billion credit financing gap in the Africa and Middle East region for SMEs, and provide business and financial consultancy services thorough a mobile app and a desktop application. MES & DAK’s solutions

include an ERP system, and a business network platform. “We help them [SMEs]to improve management skills, enterprise governance and we help them also to assess, to market through online and offline shops,” said Gilles Komi Maglo, CEO, MES & DAK Corporation. Through the use of MES & DAK’s M-Global suite of apps, financial data for the client is improved and access to

funding is facilitated. Structured data also supports management quality and control, thus participating in capacity building. “We assist MSMEs, before, during and after funding. During funding we connect MSMEs with appropriate fund providers, being equity and or debt financing. We are creating an unprecedented opportunity to the players from the banking and financial services industry. MES & DAK is a fintech for collaboration,” said Maglo. MES & DAK has just started, with the launch of its platform and is heading to pilot its applications and solutions. This will take the company about six to eight months. cont. on page 38

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29 November 2017 Kuala Lumpur, Malaysia

For more information please contact CPI Financialâ&#x20AC;&#x2122;s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net

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cont. from page 36

“We have been fortunate to gain early support from our technical partners, particularly the German financial software provider, www. subito.de. We are also benefiting from a top-notch advisory services from Ernst &Young (EY); In fact, we have been shortlisted as finalist for the EY Startup Academy 2017,” said Maglo. MES & DAK has spent a great deal of time and resources to understand the problems associated with creditfinancing gap towards MSMEs. Maglo’s conclusion is that the problem is complex and chronic. The three major stakeholders, namely the MSMEs sector —and the larger private sector—the banking and financial services industry, and governments are individually facing their own respective challenges when it comes to funding and support. MES & DAK is able to work towards assisting each stakeholder individually by helping the stakeholders to collaborate in an efficient and transparent manner. To achieve this, MES & DAKs online platform is designed to serve all of the economic players in one place, eliminating market frictions, enabling transparent and realtime interactions 24/7. The platform, according to Maglo, is one of the key technologies that will contribute to solve decisively, but also progressively complex and chronic development problems. The platform is designed to eliminate invisible barriers (such as gender and or ethnic discrimination) and corruption. Furthermore, the platform is designed as an accelerator for digitalisation. Finally, the platform is designed as a driver for disruption. “Our solutions will contribute disrupt the sector of accounting and financial management, management consulting, debt and equity financing towards small enterprises, which is an untapped market estimated at $380 billion in 2016 for Africa and Middle East, and underserved needs

We assist MSMEs, before, during and after funding. During funding we connect MSMEs with appropriate fund providers, being equity and or debt financing. – Gilles Komi Maglo, CEO, MES & DAK Corporation –

that we will significantly disrupt,” stated Maglo.

FINDING FUNDING

Seed funding in Morocco is almost non-existent and the Government does not provide much public support for MSME initiatives. According to Maglo, even though he believes that some policymakers understand the need for seed funding, they have not yet come up with practical measures and solutions to put seed funding in place. To fund MES & DAK, Maglo sold his personal properties and brought out a song that is available to purchase. “When you look at this young population full of energy and creativeness, and trying to make it in

GREATEST SUPPORT? What’s the best/worst thing that happened since you started with your company? The best things that happened to us are (1) the unconditional support of our partners despite our limited financial resources (2) the opportunity provided by Prof Dr. Andreas KÖNIG and Prof Dr. Michael GRIMM both from the University of PASSAU. (3) The great support we are getting from EY Startup Academy, giving the understanding that MES &DAK needs at this crucial time, top notch advisories to realise its potential. We are thankful for opportunity offered by EY. What do you find most challenging about starting up a company? Finding the right people and partners. What do you like/dislike about being a founder? Dislike: As we are building a multisided platform to solve complex problems, which is heavy duty, yet and too often, majority of people have short-term considerations, only thinking of ROI, and little risks to bear. At MES & DAK, our undertaking is beyond moneymaking, we are committed to deliver both commercially viable and sustainable development solutions. Like: The confirmation that we are solving real problems that will change thousands life. Receiving encouragements from potential customers, expressing how, the solutions we are building will ease their life and enable them to grow their enterprises. Should there be more hours in the day? How would you use them? Spend more time with my family and have time to read. Source: Gilles Komi Maglo, CEO, MES & DAK Corporation.

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business, if there is no seed funding in place, the whole question is how are they going to cross that bridge? Something needs to be put in place. If I had had no property to sell, how could I make it?” he asks. “As I am a trained piano player, I wrote a song (Special Africa), which is now online, which we are selling for EUR 1.29 so we can continue to raise funds to grow, until we get investors to come around. At some point I will have no more assets to sell to continue the journey.” Seed funding is a critical that deserve to be reviewed by policy makers, such as Development Financial Institutions and Governments. Something must be put into a place, according to Maglo.

COLLABORATION

Maglo also said that another problem for MES & DAK was finding the right staff. So, instead of looking for full-time employees, he went the route of giving people the ability to monetise their skills in collaboration with the company. “So, assuming that you are African, you are based in London, in Frankfurt, in Dubai, but are dreaming of coming back home, but cannot leave your job and family, you can join our platform and collaborate with us. We are identifying who is who and little by little building that team that we want. That is how we approached the problem,” stated Maglo.

GROWTH: GEOGRAPHICAL OR PRODUCTS?

Maglo said that the company has two growth strategies, to grow geographically and to grow its products. “I would think that we would go first after geographical growth and parallel to that, we will step by step, using lean approach bring our new tools online. The tools are developed for the user. When you think of platforms, you have to think global. If you do not think global, whilst you studied in Africa, you can have a competitor coming in from South

America, India or China and roll you out of business, so we have to Blitzkill and have a geographical presence and from there product development and fine tuning can follow, but then again much would depend on the partner we have around MES & DAK,” he stated.

RISK AVERSE

Moroccan banks are looking for ways and means to increase turnover and do business, but it is clear that a bank will not fund any enterprise which is small or large which is not funding ready, stated Maglo. “We must realise that SMEs are not funding ready, but those financial institutions are facing their own problems, they do not have that specialist within the team that understands the many verticals in which SMEs are operating. They do not understand their business. Banks are putting high pressure on the executives for more profits, so banks’ executive side looks for where they can make easy and quick returns for their investors and be on the safe side,” asserted Maglo. “In Nigeria for example, where the oil sector in an incentive to make truly big deals, when you combine that with bonds for government, there is no incentive for banks to waste their time trying to understand small businesses.” MES & DAK’s first priority is to make SMEs funding ready, and then it will be the banks who will lose by not partnering with the SME sector, according to Maglo. “Whilst the oil price is dropping down in Nigeria, banks are now looking for ways to support SMEs. One needs to have an operator or player that helps that large

Why Moroccan banks are adverse to funding MSMEs Banks Weak knowledge & clear strategic plan on MSMEs’ sector Inadequate resources (tools, specialists), to deal with MSMEs Long application process Inefficient banking systems Macro economic factors e.g. currency risk, inflation Inefficient business environment (legal, regulation, collateral, credit report & credit bureau....) Private Equity/ Venture Capital Mismatch between supply and demand by investment type Large number of funds for a few potential projects Low level of collaboration among fund managers Increasing number of un-served “small” deals Source: Gilles Komi Maglo, CEO, MES & DAK Corporation.

number of SMEs at the level which they can do business with banks and private equity and venture capital. They do have the same problem as well,” said Maglo. “Once we make our SMEs funding ready, we are looking for creating a co-funding incentive for those enterprise, because when you see the financing we do not believe that the bank only will fulfil that gap $360 billion. There will be a time we can open for investors to tap into that potential–syndicating deals with banks, or financial institutions, operating in Africa.”

From our platform, namely M’Network (www.mesdak.com/mnetwork) we are offering Free registration for all economic players Free App for bookkeeping and accounting to all small business Free Access to online shop (in plug and play style) for every small business Source: Gilles Komi Maglo, CEO, MES & DAK Corporation.

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AI in financial services: the next frontier By Abhijit Duge, Industry Principal, Finastra Many industries will see rapid change due to the impact of artificial intelligence (CREDIT: CARLOS AMARILLO/SHUTTERSTOCK).

t the 2017 Money 20/20 European FinTech conference, Antony Jenkins, former CEO of Barclays and current CEO of 10x Future Technologies, warned that banks could be facing their very own â&#x20AC;&#x153;Kodak momentâ&#x20AC;?. Failing to keep up with the pace of rapidly developing technologies could lead to banks falling into irrelevance. Various industries such as automobile, oil and gas, and manufacturing to name but a few, are seeing rapid changes in processes and consumer demands with fast advances in technology for driverless cars, ride sharing, electric vehicles and 3-D printing. New and disruptive

technologies are fundamentally changing the business models in these industries. Banking and financial services are also facing major disruption. The rise of fintechs and more recently, regtechs are forcing banks to radically rethink their business models. More than ever before, financial institutions must leverage technology to either create, or offer new and innovative services. Banks can no longer rely on conventional practises. They must adopt and deploy a range of new and advanced technologies across all of their services. A few of them are currently reshaping banking:

Abhijit Duge

achine Learning (ML) M Artificial Intelligence (AI) Natural Language Processing (NLP) Robotic Process Automation (RPA) Distributed Ledger Technology (DLT) Digitalisation, innovation, and automation are demanding such

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technologies and quickly forcing established players to rethink roles and processes across the board. As Jenkins said: “as the technologies develop and season, they are going to create a totally different way of doing banking and financial services.” Financial organisations cannot ignore this wave of innovation. They must learn how to embrace the rise of the machines in financial services if they do not want to become completely irrelevant.

DRIVING FORCES

Key forces are driving these changes and their impact can be felt throughout the whole banking space globally. Regulation The structural impact on capital markets of the ever-changing regulatory environment is all too visible. While Basel III is forcing banks to optimise their capital deployment strategies, the upcoming Fundamental Review of the Trading Book (FRTB) will force them to exit certain desks or stop dealing in certain instruments altogether. Such regulations have also imposed a massive burden on banks in the form of operational and technology infrastructure costs. Cost pressure Margins and profitability have come under pressure while growth is still proving elusive. Banks are reassessing their cost structure with even more scrutiny than before and are looking hard at trimming all that appear superfluous. Shifting markets Many financial institutions are exiting markets and shutting down business units where returns have been substandard to focus instead on their core markets and core competencies.

At a global level, banks struggle to deliver a decent return on equity (ROE), barely staying above their cost of capital. Pre-crisis ROE levels of 13 per cent and above now seem like distant memories and impossible to reach considering higher capital requirements and lower profits.

IN PURSUIT OF OPERATIONAL EFFICIENCY

As banks devise new ways to temper the regulatory capital shortfall under Basel III and improve their ROE, they are taking a harder look at costs in their business. Having identified the need for improved operational efficiency and automation as key focus areas to extract the most cost reductions, they now need to take advantage of technologies such as robotics and AI. Applying AI and robots to manage various daily banking operations has allowed banks to achieve their cost reduction targets by significantly cutting down offshore and back office jobs. Such technologies have also helped financial institutions to transform their businesses through efficiency gains. Financial organisations are now turning to RPA to automate repetitive clerical tasks and activities previously done by humans. According to a recent KPMG report, in the next 15 years, it appears likely that 45 per cent, and perhaps up to 75 per cent, of existing offshore jobs in the financial services sector will be performed by robots, “that is expected to translate into enormous costs savings of up to 75 per cent”. Many global banks are actively looking at applying AI to carry out compliance activities such as AntiMoney Laundering (AML), KnowYour-Customer (KYC), monitoring of suspicious activities, and many other. According to a Citigroup (NYSE: C)

report, the biggest banks have doubled the number of people in their compliance and regulation divisions in the last few years. This represent a cost of $270 billion a year for the industry and accounts for 10 per cent of operating costs. Using AI in the regulatory space will trigger some substantial savings. UBS (VTX: UBSG), JPMorgan Chase (NYSE: JPM), and Goldman Sachs (NYSE: GS) have all been pushing AI solutions to trading floors. They use ML to optimise trading strategies for their clients, resulting in massive productivity gains. According to UBS, AI performs a task that a human would accomplish in about 45 minutes in only about two minutes. AI also has an impact on headcount and Goldman Sachs estimates that “four traders can be replaced with one computer engineer” who can effectively code the machines to optimise trading strategies.

AN IDEA WHOSE TIME HAS COME

Global venture capital investment in fintech grew by 11 per cent to $17.4 billion in 2016 according to PitchBook data. As banks aggressively pursue their strategic cost-cutting exercises and try to reclaim a competitive advantage over their peers, financial institutions consider deploying disruptive technologies as the means to achieve their goals. While the pace of adoption will vary across emerging and mature markets, the sheer transformation brought by these new technologies will make for some compelling discussion at the top level of the banking industry. As the French writer and poet Victor Hugo famously said, “There is nothing so powerful as an idea whose time has come.”

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The Gulf-Africa corridor Dr. Cheick Modibo Diarra, former Prime Minister of Mali, discussed with Banker Africa the impact that Middle Eastern investment has had on the African continent

We have already seen significant investment flows heading from the Arabian Gulf to Africa, where have these investments been targeted?

Dubai has positioned itself for a long a time as the gateway to Africa. The access to the Dubai is easy, creating a business in Dubai is easy, being able to actually transfer money and being compatible with Dubai law are easier. Dubai also has its own Chamber of Commerce which has been doing a lot year after year and this can be seen in the Global Business Forum Africa, an event organised by the Dubai Chamber of Commerce where head of states, from Africa are invited along with people from across the region to enable networking. This creates a platform in Dubai where African decision makers can talk to investors coming from all over the world. I think this image is sticking more and more and this is why when you look at our own annual conference [the ALN Annual International Conference], which we originally intended to do in Dubai and other places, but after we came to Dubai for the last four years weâ&#x20AC;&#x2122;ve been stuck there because it really the ideal place where all the business people from all over the horizon can meet.

We have seen some specific investment from the gulf that has gone into four major areas, at least to my knowledge. The first one is infrastructure, for example you can look at the $16 billion that was committed by Abu Dhabi companies to transportation projects across West Africa in 2014 then there is a $36 million project announced by the fund for Arab Economic Development in 2015 that is an invested to mend the highway in Senegal. Then another area that has seen investment is in the area of agriculture. You have the United Arab Emirates Al Dahra Agricultural that is investing in wheat farming in Egypt and we have the Saudi companies that have invested heavily in agricultural centres in Sudan. The third area that we have seen investment from the Gulf into Africa is in the financial services realm. Whilst fourthly we have seen investment in consumer goods and the retail sector which will continue to grow across the continent. I have the impression that you know Africa really is now more and

ubai has often been referred to as a gateway to the African market, to what extent is this true, and if so why is that the case?

Dr. Cheick Modibo Diarra

It is also a very important destination from a capital perspective because the access and accessibility is there, the laws are there, the type of people that you need to meet are there. All of the world seems to be crossing in Dubai and because of that if we need to do business then creating a bridge that goes from Dubai across the waters all the way to Africa will be the most navigated road to being able to do business on the continent.

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Dr. Diarra participated in panel discussions at the ALN Annual International Conference.

more being seen as the last frontier of investment that will actually give you a good return. Along with the traditional extractive sectors, such as minerals and gas, these new areas are being added and the people from the Gulf are people who have positioned themselves and developed relationships with Africa and with African decision makers.

Why has the Gulf become a player in this area? I think it is because it really is a sound investment that came from a good analysis of the return of the investment. There are also many things in common historically, religiously, culturally, we have a lot in common, people have been traveling between these two parts of the world for millennia. That is important but especially there has been very sound analysis, very strong reason to invest and we have a similar philosophy in making money. The way that we invest and the way that we assume our corporate social responsibilities are very important, the cultural aspects are very important.

I believe that it is because of all of this that we have seen this trend coming.

In which areas are we likely to see investment in the future? The areas of investment that I see as rising in the near future would be that of healthcare and education because these are two areas that Africa is really demanding for the simple reason of demographics. Three to four years ago the population of Africa passed the one billion mark, with huge growth predicted in the future, it’s going to be a huge market with a lot of people and the population is also very young; the average age is below 35 across Africa. These kinds of young populations are in need of training, capacity building and healthcare—if you look at the average age it is low because life expectancy is not that high. If middle class starts emerging and economies start improving, people will invest more and more into health, good healthcare and quality healthcare, but at the same

time they will invest even more in the areas of education and preparing the next generation to be able to take advantage of all the investment opportunities that are emerging. We need to have more and more people ready to take advantage of those opportunities by training them and educating them.

Dr. Cheick Modibo Diarra is the former Prime Minster of Mali and Chairman of ALN (Africa Legal Network). He was the Prime Minister of Mali from April to December 2012 and the chairman of Microsoft Africa from 2006 until 2011. He is a goodwill ambassador for UNESCO and also served as the CEO of the African Virtual University, based in Kenya, in 2002—2003. ALN recently held its Annual International Conference under the theme ‘Africa: Bridging the Gulf’, for our coverage on this, turn to page 13.

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Venture capital by education Banker Africa spoke with Adedana Ashebir, Regional Manager, Africa, Village Capital about her firm’s unique approach to venture capital

ow is Village Capital different from other venture capital firms?

Village Capital is a venture capital firm with its headquarters in Washington D.C., and offices in San Francisco along with three emerging market offices in Latin America, in Mexico City, Africa, out of Nairobi and India. We have five sectors of focus— agriculture, fintech, education, healthcare and clean energy. What differentiates us that is unique among other VC firms, is that we run sector specific investment workshops. For instance, we will open applications for the Africa programme and collect anywhere between 100 and 200 applications from which we select 10 to 12 of the most promising entrepreneurs and we put them through our curriculum. The curriculum is called Venture Investment Readiness Awareness Levels, VIRAL for short, and aims at helping entrepreneurs help their business to prepare for investment. At the conclusion of our workshop, the entrepreneurs themselves act as the investment committee and select which two ventures among them should receive our funding.

challenges and operating constraints and that feedback is really vital to us.

How has this approach been successful in comparison to the traditional VC approach?

Adedana Ashebir

We do this in part because we are trying to remove investor bias. We find that this is a common thread throughout emerging markets venture capital. VCs [venture capitalists] that are working in emerging markets tend to conflate pattern for potential for instance, this person went to my school, or this person is from my country. Instead we find that entrepreneurs that are building these businesses in these markets are much better judges of the

We are definitely perfecting it over time, our curriculum has changed over time and we don’t have any exits as yet, but we are confident in the future of our portfolio, and we are looking forward to seeing how it progresses. In terms of variety and the founders and where they are from, we’re pleased with the make-up as well, 35 per cent of the global portfolio is either founded or co-founded by women. This is particularly salient due to two facts which emerged from our fintech report, Breaking the Pattern: Getting Digital Financial Services Entrepreneurs to scale in India and East Africa. We found that 72 per cent of all disposed VC funding in east Africa in last two years went to only three companies, Angaza, Off Grid Electric and M-Kopa, and then the remainder of that VC funding was split between 57 companies. Additionally, start-ups that have at least one foreign or non-African co-founder or founder received 90 per cent of funding that goes into East

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Village Capital is confident in the future of its portfolio.

Africa, and these are the things that we are trying to address It’s not to say that those three organisations where not deserving, they were deserving, and it’s not to say that start-ups that have at least one foreign or non-African founder are underserving, it’s more that in the latter case these start-ups have access to more networks, more access to capital and that it’s a lot easier to make those connections than if you are a founder that isn’t diaspora and is building something, so that’s what we are trying to address with our work.

How do we create more investment for start-ups in general across the continent? I think it takes time and it takes a lot of effort. Our previous model [before setting up an office in Nairobi] was of flying in and doing pitch competitions, but that doesn’t work and also pitch competitions are partially weighted towards a particular type of entrepreneur who has that comfort level to get up in front of an audience and say something for 30 seconds, and with this is with plenty of places on the continent where English is not the first language. So, I think it takes a concerted effort in terms of pipeline

partners and in terms of networks. I also think getting the diaspora involved is important. This is one trend that I have noticed increasingly. There are those first and second-generation people that have emigrated out of Africa who are looking back to the place where they came from, or their parents came from, and they’re looking to make an impact, they have some disposable income and are thinking about investments and where to put their money. Including the diaspora as well will be key because they already have networks with folks, whether it be in terms of university or cousins or people who are building things, whatever the case may be.

Has Village Capital seen any input from the diaspora groups? The West African diaspora network in particular is quite robust, especially in Nigeria and Lagos. In our last workshop, which was fintech in last year I believe, we had two investments on the day made by angel investors. I’ve also had some conversations with Kenyans who are looking to make investments and are looking for vehicles, but I would say that West Africa is a bit further ahead in terms of that trend, although this is not to say

that there isn’t interest in the various other regions as well.

What does the future hold? We are currently exploring a venture debt fund because we find that many entrepreneurs are they are struggling to get well structured, well-priced debt and so that’s something that we are considering so I want to put a call out for anybody who is also looking at doing this and please reach out and see how we could potentially collaborate. In addition, our next programme is fintech and applications will open next month, October, so we will be holding a new fintech cohort looking at financial health, including insurtech, pensions and savings, cooperative finance, financial literacy, or in start-ups that are leveraging data for credit storing, consumer credit scoring, consumer insights, or introducing payments into other mobile services including social media or online commerce or more applied fintech. In part this is stepping away from the payment and remittance conversation which has gotten a lot of attention but looking at fintech that is supplied to our other sectors of interest, so adfintech, energy fintech, education fintech and health fintech.

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Africa: one, but not same According to a new report, too many investors still think of Africa as a country rather than a continent

Investors need to realise Africa is a diverse continent with differing opportunities and risks (CREDIT: ANTON BALAZH/SHUTTERSTOCK).

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frica is big. It is second only to Asia in size and population. And yet, perceptions of it as one homogenous block persist. A new report from UBS highlights how outdated images of Africa are harming its investment prospects and investors’ portfolios. Many investors have yet to comprehend Africa’s true size and diversity. Although many social, economic, and political challenges still persist, the widespread misconception of Africa’s true variety not only fails to accurately portray the continent, but might also result in investors missing out on opportunities. Africa is often still viewed and portrayed as one large land mass shrouded in mystery. News stories on Africa tend to feature starving children and impoverished villages. The media regularly paints negative images of a region where only poverty, famine, disease and conflicts thrive. According to UBS, this is costing investors investment opportunities. In its report, UBS’ Chief Investment Office argues that the economies of several African nations, including those of some of the larger countries such as Egypt, Kenya and Nigeria, can comfortably grow at five per cent or more in the years ahead.

THE TROUBLE WITH AFRICA

Although the paper conveys an optimistic message about Africa, it also points to the manifold challenges the continent faces. Many of its countries remain heavily dependent on exports of just a handful of commodities. Others have insufficient governance standards or are not sufficiently engaged in the reform process. Commodity price fluctuations, periods of weak market sentiment and upward pressure on global interest rates have all conspired to

dampen growth prospects of many African nations. The report doesn’t shy away from the corruption and poor governance which hinder parts of Africa’s development. Money and resources diverted into individual’s pockets deny a country the funds needed to develop vital segments of the economy. However, UBS is quick to point out that corruption indices such as the World Bank’s Worldwide Governance Indicators (WGI) show that the continent cannot be lumped together:

Africa’s true variety not only fails to accurately portray the continent, but might also result in investors missing out on opportunities.

The Seychelles, Botswana and Namibia rank in the top quartile globally in their control of corruption; distinctly higher than countries such as Spain, Korea, or Italy. At the same time, the very bottom of this ranking is also populated by African nations, including countries such as Libya, Somalia, Angola, or the Democratic Republic of Congo (DRC). UBS’ primary aim is to convey the striking contrasts which exist between the economies of Africa; almost half of the countries are resource-rich, while others are net commodity importers.

Many sectors are also characterised by low consolidation and high potential in terms of growth and profitability, supported by structural drivers such as positive demographics, infrastructure developments, a rising middle class and economic reforms, the report said. It cites wholesale and retail, healthcare, financial services, food and agriprocessing as examples of this; it also lists light manufacturing, which is probably one of the most overlooked sectors in Africa. The report singles out individual countries for their size, ‘investability’ or potential. The report highlights places with vibrant growth as Côte d’Ivoire, Egypt, Ghana or Kenya; while pointing to other countries, such as South Africa, as being in need of more market-friendly policies.

EGYPT: ARABIAN MIGHT

Inevitably, Egypt’s economy was singled out as comparatively advanced and diversified. “Egypt’s large population and economy, sizable growth potential, as well as its relatively developed capital markets, with investable assets in foreign exchange, fixed income, as well as equity and non-traditional markets, attract considerable attention,” it said. UBS estimates that Egypt’s economy can expand between five and six per cent on a sustainable basis. UBS believes that its geographical location in the northeast is a competitive advantage for trade, and also makes it an attractive destination for foreign investments. After several years of political and social turbulence, UBS cites more recent data releases which hint at stabilisation. The liberalisation of the FX regime should help to improve business conditions as well as the availability of foreign funds, an important requirement for future growth, the report said. cont. overleaf

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cont. from page 47

However, the threat of renewed tension lingers in Egypt, fuelled by a fast-growing population, high youth unemployment and security risks in parts of the country. Its debt-to-GDP ratio is also dangerously close to 100 per cent. Ali Janoudi, Head of Central and Eastern Europe, Middle East and Africa, France and Belgium International at UBS Wealth Management, said, “Egypt seems to have stabilised after years of political and social tensions, which is a positive factor for the nation’s economic development. We are cautiously optimistic and believe that continuing reforms will send a positive signal to international investors.” Michael Bolliger, Head of Emerging Market Asset Allocation at UBS Wealth Management’s CIO, added, “Egypt’s size and relatively developed economy make it an attractive destination for foreign investments. Having said that, we believe that concrete steps such as reducing debt must become a priority in order to achieve sustainable growth.”

Janoudi said, “We see tremendous potential for Nigeria’s economy, which is Africa’s largest, but in order to achieve its potential, current reform programmes must be implemented and

The Seychelles, Botswana and Namibia rank in the top quartile globally in their control of corruption; distinctly higher than countries such as Spain, Korea, or Italy

NIGERIA: TOO BIG TO IGNORE

As Africa’s largest economy, it is impossible to ignore Nigeria. UBS said that Nigeria’s domestic market offers a huge potential, but sticking to the reform process, controlling the security situation, and ensuring political stability are key for progress. The report points to a recent recovery in energy prices, which will help the economy to escape recession; however, the country is still heavily dependent on energy exports, which does not bode well for public sector revenues. UBS said that diversifying is a must, as well as measures to broaden the tax base. Liberalising the exchange rate regime further could promote these goals, although the timing of such steps is critical.

in some instances, accelerated. The current climate of higher energy prices and relative domestic stability indicate now is the right time to act.” Bolliger added, “In the near term, oil will remain an important source of income for Nigeria. However, the impressive growth rates of nonresource-rich countries in Africa clearly indicate that development beyond oil is the way forward.”

SOUTH AFRICA: SOUTHERN BELLE?

South Africa is a difficult one. Its established capital market, freefloating currency and the stellar track

record of the South African Reserve Bank are among its strengths. However, the country is in the midst of a power struggle and growth prospects are low; the IMF expects real economic growth of around two per cent in coming years. While UBS puts the continent’s most southern country among the more advanced economies, UBS believes risks are skewed to the downside. UBS sees the potential return to economic and structural reforms as an opportunity, but the likelihood thereof is limited. It said that a return to a more market-friendly and transparent government structure is key for the medium-term outlook. Investors and rating agencies will be closely watching the outcome of the ANC National Policy Conference in December, where the incumbent party will elect its next leader. Michael Bolliger, Head of Emerging Market Asset Allocation at UBS Wealth Management’s CIO, said, “South Africa’s deteriorating credit ratings have weighed on investment in the country in recent years. Reforms that enhance the country’s fiscal position as well as stimulate its economy would send out a particularly positive signal to investors.”

MARKETING AFRICA

The IMF expects economic growth of around four per cent in Africa over the coming years. UBS argues that economic performance can be substantially higher in some sectors, such as in manufacturing, retail, and finance. While governments need to ensure that the right policies are in place to harness Africa’s demographic dividend, ease infrastructure constraints, diversify export sectors and improve intra-regional trade, perhaps its biggest challenge remains how to market its potential to the world.

www.bankerafrica.com

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PICTURE OF THE MONTH

Goma, Province of North Kivu, DR Congo. After her visit in Kitshanga, the Princess of Monaco went to the Heal Africa Hospital where she laid the foundation stone for the construction of a health centre for improvement of health in Goma ( C R E D I T: M O N U S C O /A L A I N WANDIMOYI/FLICKR).

Which African countries are ripe for Islamic financing products? Africa has abundant, non-forested arable lands THOUSANDS OF HECTARES (2014) DR Congo Angola Republic of Congo Zambia Cameroon Mozambique CAR Gabon Sudan Tanzania

85,824 18,889 12,872 10,872 10,834 8,994 7,049 6,534 5,803 4,313

The African continent has abundant uncultivated arable land, estimated at roughly over half of the global total. This represents a significant opportunity for agricultural investment (CREDIT: THE AFRICAN CENTER FOR ECONOMIC TRANSFORMATION/ATLAS/QUARTZ).

www.bankerafrica.com

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BANK OF THE FUTURE Owned by some 18,000 domestic and international shareholders, with over 500,000 customers, SBM Holdings Ltd is a leading financial holding company listed on the Stock Exchange of Mauritius. Besides Mauritius, SBM Group is present in Madagascar and Kenya. The Group also has offices in India, which will become a wholly owned subsidiary in the near future, and a representative office in Myanmar. SBM Group is also expanding into the region mainly in the Indian Ocean and East Africa. In line with its expansion plans, the Group has recently been granted a banking licence in Seychelles subject to conditions which it has undertaken to fulfil. Its portfolio of services covers banking, nonbanking financial services and non-financial investments. Innovation, flexibility, accessibility and reliability are at the root of the SBM reputation and brand. Established in 1973 as its banking entity in Mauritius, SBM Bank (Mauritius) Ltd is the Group’s flagship. With a domestic market share of over 30%, the Bank delivers solutions for its diverse customer base: Consumer, SME, Corporate, International and Financial Institutions. SBM’s major products and services are: • Global Business & International Banking • Investment Solutions • Treasury Services • Cross Border Financing • E-commerce • Trade Finance • Wealth Management • Investment Banking To tap the potential of emerging markets, the Group is gearing up for further expansion plans in the East African, Indian and Asian regions, thus further strengthening the existing continental links with Mauritius.

T: (230) 202 1111 E: sbm@sbmgroup.mu www.sbmgroup.mu

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