#54 September 2018

SEPTEMBER 2018 | ISSUE 54

MANAGING AFRICA'S GROWING PRIVATE WEALTH DEMIR AVIGDOR, Market Head, Africa & Europe Private Banking, Standard Chartered

EDITOR’S NOTE

H

ello and welcome to the September issue of Banker Africa.

We feature Demir Avigdor the Market Head, Africa & Europe Private Banking at Standard Chartered on our front cover. Avigdor points to Africa as a key market for Standard Chartered and notes that the bank has been operating on the continent for over 150 years.

On the difficulties of doing business on the continent, Avigdor said, “The best way to mitigate risk is to ensure you really know and understand your clients, their needs, their businesses and their specific market conditions. Our vast local networks facilitate this and help us obtain valuable insight so we can better support our clients.” Turn to page 22 to get the full story.

We turn our eye to the West African nation of Ghana for our country focus this month. In the year since we last analysed the Ghanaian macroeconomic environment the country has returned to its impressive growth figures, driven in part by new hydrocarbon resources coming online. According to the World Bank in 2018 Ghana is expected to be the fastest growing economy in the world. Indeed, six out of the ten fastest growing economies in 2018 are expected to be African. Turn to page 28 to get the full story.

Recent political developments in South Africa have given rise to the possibility of the nationalisation of the South African Reserve Bank. Current proposals on the table point to an attempt to achieve control of monetary policy by politicians.

There are few examples that can be pointed to whereby political control over monetary policy has resulted in positive results. On page 16 Jannie Rossouw the Head of School of Economic & Business Sciences at the University of the Witwatersrand goes into move depth on this issue and says, “Experiences from other countries that do this, like Zimbabwe and Venezuela, are not good.

They are all economic basket cases.”

Africa presents a different brand of potential outside of other traditional developed investment behemoths. As such a different method needs to used to capture the true investment potential of the continent, along with an understanding as to how best to execute an investment strategy, says Todd Micklethwaite of Sanlam Investments. There is more to Africa’s investable universe than just listed equity, adds Micklethwaite. Turn to page 52 to get the full story.

Until our next issue, Matthew Amlôt

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CONTENTS

SEPTEMBER 2018 | ISSUE 54

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22

18

IN THE NEWS

MARKETS

6

News analysis: Mnangagwa maintains

18 Trade tensions, interest rates and the

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Essential financial news from around the continent

COVER INTERVIEW

9

power

Spotlight: South Africa

like: the bane of 2018

22 Managing Africa’s growing private wealth

OPINION

12 Africa’s insurance industry is poised for

further growth

By Victor Muguto, Long-term Insurance Leader for PwC Africa, and Pieter Crafford, Financial Services Advisory Leader for PwC South Africa

Banker Africa sat down with Demir Avigdor, Market Head, Africa & Europe Private Banking, Standard Chartered to discuss the state of the bank’s private banking offering on the African continent

36 How can banks in Ghana overcome the

organisation into a digital business

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Africa’s central bank will, and won’t, do Moving ownership of the South African Reserve Bank to politicians presents some worrying prospects, says Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

44 The truth about AIs impact on jobs 46 Fund raising: disrupted INVESTMENTS

48 Invest in the youth

28 Methodical progress

share by over 20 per cent with new digital services

16 What changing the ownership of South

42 ZB Financial Holdings grows market

COUNTRY FOCUS

14 Four starting points to turn your

Kristen Moyer, Vice President at Gartner provides advice on how companies can begin their transformation efforts

TECHNOLOGY

Ghana has returned to impressive growth and continues to outperform many of its African rivals

ENERGY

38 Powering change

52 How to invest meaningfully into Africa

financial crime challenge?

By Gaëtan Deblaere, Product Manager— Financial Crime Mitigation, Temenos

NJ Ayuk, CEO, Centurion Law Group discusses the role that the energy sector has to play in African Growth

Dr Cheick Modibo Diarra, former Prime Minister of Mali, discussed with Banker Africa the state of the international investment climate on the continent

There is more to Africa’s investable universe than listed equity, says Todd Micklethwaite, Client Solutions and Research, Sanlam Investments

56 The next pinnacle in investment

Najwa El Iraki, Founder & Managing Partner at AfricaDev Consulting, speaks exclusively to Banker Africa about the investment challenges facing the continent

ISSUE 54 | SEPTEMBER 2018

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CHIEF EXECUTIVE OFFICER TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681

SEPTEMBER 2018 | ISSUE 54

MANAGING AFRICA’S GROWING PRIVATE HEALTH Demir Avigdor, Market Head, Africa & Europe Private Banking, Standard Chartered

EDITOR - BANKER AFRICA MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716

SALES DIRECTOR OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

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BUSINESS DEVELOPMENT MANAGERS DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526

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

MANAGING AFRICA'S GROWING PRIVATE WEALTH

A CPI Financial Publication

DEMIR AVIGDOR, Market Head, Africa & Europe Private Banking, Standard Chartered

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MAY 2018 | ISSUE 52

Awards 2018 results announced

62 Announcing the 13th annual Islamic

BRIDGING THE HORIZON JOSEPH E. CHARLES CARTIER, Chairman, Mauritius Economic Development Board

60 Banker Africa—West Africa Banking Business & Finance Awards

BRIDGING THE HORIZON

THE LONG VIEW

THE VIEW

66 Photo and chart of the month

A CPI Financial Publication

64 Are you being served?

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AWARDS

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CONTRIBUTORS KRISTEN MOYER, JANNIE ROSSOUW, GAËTAN DEBLAERE, DIEGO WURGLER, TODD MICKLETHWAITE ALLAN LEINWAND, VICTOR MUGUTO PIETER CRAFFORD

DETERMINED GROWTH Kenya’s positive outlook for 2018

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CHAIRMAN SALEH AL AKRABI

SEPTEMBER 2018 | ISSUE 54

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CONTENTS

JOSEPH E. CHARLES CARTIER Chairman, Mauritius Economic Development Board

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NEWS ANALYSIS

MNANGAGWA MAINTAINS POWER The recent election in post-Mugabe Zimbabwe has proven revealing

E

lections have always been tense in the Southern African nation of Zimbabwe. The previous four elections since 2000 have featured violence and allegations of election irregularities but have always had the same result—the continued rule of the Zanu-PF. Zimbabwe’s recent election was meant to be a watershed moment for the country’s politics. Indeed, this would be the first moment since independence in 1980 that Robert Mugabe would not be on the ballot. However, it was with some dismay that the world watched a similar story play out.

The vote on 30 July 2018 was dubbed the ‘harmonised election’, pointing to the alleged ability of the election to unite the country. The reality though was somewhat different.

Some six people were killed in protests against the parliamentary results as riots broke out in the country’s capital, Harare, which precipitated the army opening fire on civilians with live ammunition.

Furthermore, mere hours after losing the election by a narrow margin, presidential candidate Nelson Chamisa of the Movement for Democratic Change challenged the result, arguing that figures presented by the Zimbabwe Election Commission don’t add up. Even as results were coming in, Chamisa was challenging results, accusing the Commission of collusion with the Zanu-PF.

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Incumbent President Emmerson Mnangagwa won the election result according to official sources.

(SOURCE: WALDO SWIEGERS/BLOOMBERG)

There were 23 candidates looking for the role of Zimbabwe’s president.

(SOURCE: WALDO SWIEGERS/BLOOMBERG)

The vote was dubbed the ‘harmonised election’ in a bid to promote unity.

(SOURCE: WALDO SWIEGERS/BLOOMBERG)

Emmerson Mnangagwa, the incumbent president and candidate for the Zanu-PF, won the vote officially 50.7 per cent versus Chamisa’s 44.3 per cent.

Despite Mugabe’s exit, this story sounds all too familiar for those that have followed Zimbabwe’s post-independence politics. The country’s military has continued to play an outsized role in Zimbabwe’s politics, with its responses to protests being seen as heavy-handed and reminiscent of Mugabe’s era.

Furthermore, the military has continued to be unwilling to declare Mugabe’s removal a formal coup, perhaps highlighting further the military’s power. The heavy military presence often associated with Zimbabwe’s elections was once again on display in 2018 despite the arguments made by ruling authorities that this election would be a chance for change.

The Zimbabwe Human Rights NGO Forum released a statement following clashes between the military and civilians, “The Forum recalls that the current government came into power through a military coup in November 2017 and is yet to prove that it can make use of state power within the bounds of the law and that it values respect for human rights. [The events of 1 August 2018] leave ordinary citizens with serious doubts that this Government is any different from its predecessor, if not worse.”

Mugabe’s exit last year had left a feeling of hope that the country might be taken back by its citizens, but instead seems to have been used as an opportunity for the current rulers to rubber stamp their power.

Even if the opposition’s challenges to the election process and attempts to overturn the result prove to be without merit, the violence displayed by those with power against civilians and the intimidation of independent voices in Zimbabwe represent a worrying trend for the future.

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IN THE NEWS

RATINGS REVIEW BANKS AND BUSINESSES Fitch Ratings affirmed the African Development Bank’s (AfDB) longterm issuer default rating (IDR) at ‘AAA’ with a stable outlook and shortterm IDR at ‘F1+.

Moody’s affirmed the ba1 baseline credit assessment (BCA) and Baa3/P-3 deposit ratings of Mauritius Commercial Bank, and also changed the outlook on the long-term ratings to positive from stable.

Fitch Ratings affirmed Togo-based Ecobank Transnational Incorporated’s (ETI) Long-Term Issuer Default Rating (IDR) at ‘B’. The outlook is Stable.

Moody’s assigned a first-time rating of Baa3 to a proposed USD bond issuance under the $4 billion global medium-term note (GMTN) programme of Eskom Holdings SOC.

ON THE RECORD Nigerian economic growth slows as oil production slumps Gross domestic product in Africa’s largest oil producer expanded 1.5 per cent in the three months through June from a year earlier, Abuja-based National Bureau of Statistics said in a report released on Twitter. That compares with 1.95 per cent in Q1.

Zambia aid package talks still on hold, says IMF

The International Monetary Fund (IMF) rejected Zambia’s borrowing plans in February, citing that it risked making it harder for the southern African country to sustain its debt load.

AfDB loans 20 million euros to Cabo Verde to boost local economic development

The loan, signed 2 August 2018 in Abidjan, is part of a two-year programme of up to 40 million euros to be disbursed in two equal instalments in 2018 and 2019.

The funds will help the new Cabo Verde Strategic Plan for Sustainable Development (2017-2021).

SOVEREIGNS Fitch Ratings affirmed Egypt’s long-term foreign-currency issuer default rating (IDR) at ‘B’ with a positive outlook.

S&P Global Ratings lowered its long-term foreign and local currency sovereign credit ratings on Zambia to ‘B-’ from ‘B’. The outlook is stable.

Fitch Ratings affirmed Uganda’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a stable outlook.

S&P Global Ratings assigned its ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings to Benin. The outlook is stable.

Fitch Ratings affirmed Cabo Verde’s long-term foreign-currency issuer default rating (IDR) at ‘B’ with a stable outlook.

Fitch Ratings revised the outlook on Lesotho’s long-term foreign-currency issuer default Rating (IDR) to negative from stable and affirmed the IDR at ‘B+’. The country ceiling has been revised to ‘BB-’ from ‘BB+’.

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Nigeria’s Oando eyes growth after clearing $2.5 billion debt

Oando Plc is looking to boost crude output from next year as the Nigerian producer breaks the back of a $2.5 billion debt burden built up through the 2014 acquisition of oil and gas assets from US giant ConocoPhillips.

(CREDIT: CORUND/SHUTTERSTOCK)

NEWS SPOTLIGHT SOUTH AFRICA

Agricultural organisations commit to work with Government

The South African Government has announced plans to sunset its plans for nuclear energy (CREDIT: E2DAN/SHUTTERSTOCK).

South Africa drops nuclear, adds renewables in energy plan South Africa has dropped proposals to boost supply from nuclear plants in its latest energy blueprint and will increasingly bring in renewable sources as it trims a reliance on coal.

“There will be a study to determine if more nuclear is needed after 2030,” Energy Minister Jeff Radebe told reporters in Pretoria on Monday. “But until then, there is no increase in nuclear generation envisaged.”

Agricultural organisations have signed a declaration of intent on land reform that will help government to transform the sector.

The African Farmers’ Association of South Africa (AFASA), National African Farmers’ Union (NAFU), Transvaal Agricultural Union (TAU) and Agri SA signed the declaration of intent ‘as living proof’ of their commitment to work together with government to develop a joint agricultural development plan for agriculture, and ensure a growing and inclusive agricultural sector aligned with the outcomes of the National Development Plan. The outcomes entail, amongst others, food security, job creation, development, sustainability and higher levels of competitiveness.

“This is a very important platform that you’ve created for all of us. As Government we would hold hands with you, we would march side by side until we reach our destination. Be assured of our support each step of the way,” Deputy President David Mabuza said.

The long-awaited update of the country’s Integrated Resource Plan for power sector spending, the first in eight years, calls for the biggest increase in capacity from wind and natural gas. Former President Jacob Zuma, who left office in February, championed the building of as many as eight reactors, which would have the capacity to generate 9,600 megawatts of energy.

South African business confidence rose for first time in six months Bloomberg reports that the business confidence index increased to 94.7 from 93.7 in June, according to the South African Chamber of Commerce and Industry. However, confidence is still lower than it was a year ago.

Under the new administration of President Cyril Ramaphosa business confidence had slumped

month-on-month after reaching a record high in January, the longest losing streak since 2011, whilst industries awaited promised reforms. Policy and political uncertainties will continue to plague sentiment however, and these are the most important areas that need improvement, the Chamber said.

The outcome from the meeting entail, amongst others, food security, job creation, development, sustainability and higher levels of competitiveness (CREDIT: MARTINMARITZ/ SHUTTERSTOCK).

bankerafrica.net

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IN THE NEWS

A QUICK WORD

“We agreed on the need to accelerate structural reforms and access to finance in order to raise overall investment and medium-term growth rates to support job creation… countries need space to provide an appropriate social safety net and address security threats in order to maintain social cohesion.”

—Tarek Amer, Governor, Central Bank of Egypt and Chairman, African Caucus during a consultative group meeting with Christine Lagarde, Managing Director, IMF

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

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NIGERIA

Zenith Bank CEO questioned by anti-graft agency

Nigeria’s Economic and Financial Crimes Commission questioned the chief executive officer of the nation’s second-biggest bank over transactions done for the oil-rich Rivers State. Zenith Bank Plc CEO Peter Amangbo was last week invited by the anti-graft agency “to clarify certain aspects of our relationship with the Rivers State government,” Victor Adoji, a spokesman for the Lagos-based lender, said by phone. He was not detained and was allowed to leave after making a statement, Adoji said, without being able to give more details of the case.

The EFCC is alleging that Zenith Bank failed to report suspicious transactions amounting to at least NGN 117 billion ($323 million) executed on behalf of Rivers State over a three-year period, Abuja-based news website Premium Times reported, citing people familiar with the matter at the regulator and at the bank. Multiple phone calls to the spokesman of the EFCC seeking comment weren’t answered.

EM selloff batters Zambia as bond spreads hit 1,000 basis points

The emerging-market selloff is piling pressure on Zambia to stabilize its finances and strike a bailout deal with the International Monetary Fund. The copper producer’s Eurobonds were struggling even before sentiment toward developing nations turned bearish around mid-April as the dollar strengthened and US-China trade tensions worsened. Those factors, along with contagion from Turkey’s financial crisis, have made the pain even more acute.

Zambia’s Eurobonds have lost 10 per cent this month, more than any of the 75 countries in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index. That’s extended their decline to 23 per cent this year and sent spreads over US Treasuries soaring to more than 1,000 basis points.

SEC finds Legg Mason unit paid bribes to win business in Libya

LIBYA

Legg Mason Inc. will pay more than $34 million to settle a US regulator’s allegations that one of its units won business from Libya’s sovereign wealth fund by paying bribes.

Legg Mason’s Permal Group Inc. subsidiary partnered with Societe Generale SA to solicit investment business from Libyan government officials, the Securities and Exchange Commission said in a Monday order.

SOUTH SUDAN

South Sudan resumes pumping 20,000 bpd

South Sudan’s output which currently stands at 130,000 barrels per day (bpd) is expected to reach 210,000 bpd by year-end. The Sudanese oil ministry has announced that South Sudan has resumed pumping 20,000 bpd of crude from Toma South oil field, where production was stopped since 2013, reported Reuters.

Azhari Abdulqader, the Sudanese oil minister, said that production at five previously suspended oil fields was expected to reach 80,000 bpd after maintenance work is completed by year-end. Oil from South Sudan is being shipped to international markets via a pipeline through Sudan.

ZAMBIA

UK aims to be Africa’s top investor post Brexit

CAPE TOWN

The UK aims to become the top foreign investor in Africa by 2022, Prime Minister Theresa May said at an event in Cape Town as she seeks to strengthen Britain’s global economic ties to show it’s open for business after Brexit.

May pledged to ensure Britain’s aid budget serves the national interest as well as fighting poverty and helping the private sector “to take root’’ in Africa’s growing economies. She said that working with African nations to boost investment, create jobs and deliver stability will help stem migration flows to Europe.

“As prime minister of a trading nation whose success depends on global markets, I want to see strong African economies that British companies can do business with in a free and fair fashion," May said in Cape Town. “Whether through creating new customers for British exporters or opportunities for British investors, our integrated global economy means healthy African economies are good news for British people as well as African people.”

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OPINION

AFRICA’S INSURANCE INDUSTRY IS POISED FOR FURTHER GROWTH

By Victor Muguto, Long-term Insurance Leader for PwC Africa, and Pieter Crafford, Financial Services Advisory Leader for PwC South Africa

A

frica’s insurance industry is poised for further growth despite recent global economic and political uncertainty. The insurance industry has done well to adapt to continuous disruption, with technological advances now considered the most important global trend disrupting the industry. Despite the added pressure of unrelenting regulatory changes and increasing costs, there are also some positive developments and opportunities for growth.

These are some of the key highlights from a report issued by PwC today on Africa’s insurance industry—Ready and Willing: African insurance industry poised for growth. This report comes at a time when economies in the region are starting to show signs of real growth on the back of recovering global commodity prices.

By global standards, Africa’s insurance industry remains relatively underdeveloped, and insurance penetration levels are very low. South Africa remains the most dominant market by a long way, with other countries such as Nigeria, remaining underpenetrated. This demonstrates to a large extent, the untapped potential of the rest of the African continent.

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TOP TRENDS DRIVING CHANGE IN AFRICA’S INSURANCE MARKETS A f r i c a’s i n s u r e r s a r e f a c i n g n ew technological and innovative changes, while at the same time having to contend with unrelenting regulatory and accounting changes. These megatrends are transforming and reshaping the competitive environment for insurers and the markets they operate in across Africa.

Leading insurers are already implementing key strategies to focus on new customer behaviours and demographic shifts. The need to be agile in the face of a rapidly changing technological environment has never been more vital.

Our survey identifies four main themes that will transform the African insurance industry: TECHNOLOGICAL CHANGES Technology and data are now considered the most important global trend disrupting the industry, but they are also increasingly being used by the industry to accelerate growth. Technology presents insurers with powerful tools, such as data mining and artificial intelligence (AI) to better understand changing customer

needs and expectations. However, it is expensive and not always easy for most insurers to ‘go it alone’. Consequently, some insurers have formed partnerships with technology companies to improve operational efficiency and respond quicker to changing customer expectations. There are also insurers in Africa already working with insurtech companies, with 45 per cent having established partnerships.

The report states that technology alone will not help insurers to capitalise on all the new opportunities. There needs to be a genuine readiness on the part of insurers to change and innovate. Only 29 per cent of the survey respondents indicated they are well prepared to change their IT business model, while seven per cent were not prepared.

Insurers that want a competitive advantage are those that are already designing and implementing digital platforms that can handle ongoing disruption.

REGULATION Behind technology, insurers identified regulatory challenges as the second most disruptive issue. While most insurers have adopted new ways of compliance, at a huge cost, the introduction of IFRS 17 will

Victor Muguto

add another significant regulatory burden.

Insurers will be compelled to modernise their systems, processes, and to re-examine their business models going forward. By now, most insurers are used to regulations and it has become ‘business as usual’.

Insurers across the African continent have embraced the regulatory changes, and are ready and willing to comply with new legislation and regulations.

It is also positive to note that that the intensity of regulatory concerns is reducing among insurers. Fewer survey respondents (2014: 90 per cent; 2017: 61 per cent) had concerns about the burden of regulation dampening risk appetite and stifling growth.

CONVERGENCE, THE NEW SCRAMBLE FOR AFRICA’S CUSTOMERS Changing demographics and rapid urbanisation are, amongst others, creating a new ‘scramble’ for Africa’s customers and a convergence of services around the customer as banks, insurers, mobile phone operators, and retailers all fight for customer attention and share of wallet.

As the shift moves towards understanding customers and their changing needs it has become imperative for insurers to

Pieter Crafford

make moves to directly own customers and customer data. In this way, insurers will become less dependent on brokers.

We have started to see convergence of insurers and bankers around customers.

While most of the major banks have had insurance operations for years, there has been a renewed interest by other banks to start insurance operations.

Likewise, some insurers are setting up separate banking operations, and mobile phone operations and retailers are pushing in. At the heart of all this convergence of banks, retailers, mobile operators, and internet companies is the power to own customers and their data, as well as crossselling of different products and services.

TALENT SHORTAGES—WORKFORCE OF THE FUTURE Insurers also highlighted talent shortages as a top area for concern. Unfortunately, the insurance industry has tended to lag behind other industries when it comes to investing in the development of young talent, particularly in the areas of technology and actuarial skills.

In order to attract and retain talent, insurers will have to invest more in the

training of their workforce of the future.

Alongside this, employee expectations are changing, with employees of the future looking for a better work-life balance. The majority of insurers are already prepared or are starting to prepare for change, with 83 per cent of respondents indicating that they either had prepared or were moderately prepared to establish a more flexible working culture to support employee work-life balance.

Insurers should not only invest in what they see as the workforce of the future, but should also be thinking about jobs that do not yet exist.

As regulations become more stringent, and the shift to client protection becomes more evident, business models will need to become more customer focused.

Insurers will need to relook and make changes to existing operations, systems, and processes in order to keep with the disruption. This will mean making changes to the middle and back office, as well as IT systems. A number of larger insurers have begun the transformation journey from old, inefficient legacy systems to more modern models adapted for new multichannel distribution of insurance.

Larger insurers are also investing a fair portion of their annual turnover on technological innovations (3.5 per cent) while medium insurers are less able to invest as much (1.5 per cent). Smaller firms are not burdened to the same extent by old legacy systems found in the larger insurers. Where it is too expensive or too time consuming to develop their own in-house systems, insurers should consider partnerships with technology companies to speed up change.

Focusing on these factors, among others, will empower insurers to leverage both the current and future insurance ecosystems to increase access to insurance across Africa. Insurers, who are clientcentric, innovative, technologically up-todate, and investing in their workforce of the future, will lead the charge to increase insurance penetration levels in Africa.

bankerafrica.net

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OPINION

FOUR STARTING POINTS

TO TURN YOUR ORGANISATION INTO A DIGITAL BUSINESS

A majority of organisations have not yet found a starting point for digital business transformation, according to Gartner (CREDIT: GORODENKOFF/SHUTTERSTOCK).

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Kristen Moyer, Vice President at Gartner provides advice on how companies can begin their transformation efforts

D

id you know that your chances of surviving a heart attack are higher in Copenhagen, Denmark? That’s because emergency dispatchers in Copenhagen now use a virtual agent to them help identify cardiac arrests. Although human dispatchers alone recognise cardiac arrests 73 per cent of the time, initial data shows that the virtual agent plus a human dispatcher recognises cardiac arrests 95 per cent of the time. This is an example of how artificial intelligence (AI) can be a starting point for digital transformation that enables machines to deliver value for an organisation.

Speaking ahead of her track on digital transformation at the Gartner Symposium/ ITxpo in Cape Town this September, Kristin Moyer, Vice President and distinguished analyst at Gartner, explains, “Stories like this can help a CIO change what people think business will look like in the future.

Our research shows that 66 per cent of leaders want to transform, but only 11 per cent are actually delivering digital business.

To determine if your organisation is already transformed, ask questions such as ‘Did we change the way we make money?’ or ‘Have we changed the way we deliver value? If the answer is ‘No,’ there’s still work to do.”

But many organisations are stuck on where to start their transformation efforts. According to Gartner research, about 57 per cent of organisations have not yet found a starting point for digital business transformation. CIOs can work with business leaders to choose the best of four possible points to begin and expand the journey of digital transformation.

CONNECTED Connected often is not a transformation, but an optimisation initiative. Organisations seek to reduce delivery times, improve device utilisation or increase productivity by implementing technologies like the Internet of Things (IoT) or dedicated digital platforms. The transformation

Kristen Moyer

begins when the organisation leverages the connected aspect to earn money in new ways, for example, when companies use generated data to create new revenuegenerating services or make data more available and transparent across their entire value chains.

AUTONOMOUS With autonomous technology, machines can make humans better, and humans

can make machines better. “The virtual agent used in Copenhagen to identify cardiac arrests is a perfect example for the autonomous approach. It’s based on AI and uses real-time speech analysis and advanced machine learning to identify the context clues of emergency dispatch calls. To create a new business model, the technology provider could sell the anonymous patient data to emergency responders to help them allocate resources more effectively in the future,” Moyer says.

EMPOWERED The empowered method lets customers and business ecosystem partners create value for themselves and the organisation at the same time. This can multiply the potential for value creation. Examples are IoT devices in the medical sector that let people perform basic self-examinations at home without a physician present.

“With an examination kit, the organisation has created a new source of revenue while empowering both partners and customers,” Moyer explains. “Healthcare payers don’t have to compensate physicians for basic exams, and patients don’t have to commute to a medical facility and spend time in the waiting area.”

PROGRAMMABLE A programmable starting point is focused on both business model change and operating model change. The aim is to let other parties create and deliver value for your organisation. This can be achieved via application programming interfaces (APIs), open source technologies or blockchain.

“In the banking sector, for example, some banks have made their services consumable for everyone through APIs. This could allow for new revenue streams by charging for API calls and selling new products, such as digital identity,” says Moyer.

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OPINION

WHAT CHANGING THE OWNERSHIP OF SOUTH AFRICA’S CENTRAL BANK WILL, AND WON’T, DO Control of monetary policy by politicians has often led to poor results, says Rossouw (CREDIT: STUART HEPBURN/SHUTTERSTOCK).

Moving ownership of the South African Reserve Bank to politicians presents some worrying prospects, says Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

S

outh Africa’s second largest opposition party, the Economic Freedom Fighters (EFF), has lodged a parliamentary motion to amend laws that govern the management and ownership of the country’s central bank.

Judging by the content of the South African Reserve Bank Amendment Bill the EFF is clearly intent on upping the ante on economic policy ahead of the national elections in 2019. The amendments come hot on the heels of the party pushing

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for the expropriation of land without compensation. The EFF was formed five years ago after it split from the African National Congress, positioning itself on the left of the political spectrum.

The EFF on its own won’t be able to affect the Reserve Bank change given that it only has 25 MPs in parliament. But the ANC has also thrown its weight behind the idea, adopting a resolution at its national conference last year to nationalise the South African Reserve Bank.

It’s not the call for the nationalisation of the central bank, per se, that’s raising concern. It’s how its been dressed up by the EFF and the prevailing political environment.

What the EFF wants to achieve is control of monetary policy by politicians.

This would be dangerous for South Africa.

Experiences from other countries that do this, like Zimbabwe and Venezuela, are not good. They are all economic basket cases.

The fact is that a change of ownership of the South African Reserve Bank would not in and of itself be a disaster. Most central banks in the world have a share ownership structure that has the state as the majority, or only, shareholder. The South African Reserve Bank is one of only eight central banks in the world with private shareholders. But this does not equate to politicians running central banks.

There are governing structures in place that ensure that central banks—even if the majority shareholder is the state—are free to implement monetary policy without political interference.

OWNERSHIP ISN’T THE POINT South Africa’s central bank has come under attack over the years. Many of the attacks have come from the left—within the ruling party and its allies the Congress of South African Trade Unions and the South African Communist Party.

Th e u n h a p p i n e s s h a s r evo l ve d around the role of the South African Reserve Bank—particularly its focus on keeping inflation under control by sticking to an inflation target—and its perceived failure to inspire economic growth. These concerns are now being manifested in the debate about the bank’s shareholding structures.

Unfortunately, the debate is informed by the mistaken view that private shareholders affect monetary policy. The corollary is that nationalisation would give the government, as the major shareholder, control over central bank policy.

BOTH ASSUMPTIONS ARE WRONG. Even though South Africa’s Reserve Bank has private shareholders, they have absolutely no say over monetary policy. Similarly, the state doesn’t dictate monetary policy in the vast majority of central banks that have governments as their major holders.

What this means is that changing the shareholding of South Africa’s bank won’t change the way the bank is run.

The bank main mandate—to keep inflation under control—is in fact anchored in the country’s Constitution. To change this focus would require a change in the constitution.

Private shareholders of the South African Reserve Bank have very little influence over it. They play no role in the day-to-day management of the institution and also no role in the appointment of the executive management, the Governor and deputy governors.

THERE ARE GOVERNING STRUCTURES IN PLACE THAT ENSURE THAT CENTRAL BANKS—EVEN IF THE MAJORITY SHAREHOLDER IS THE STATE—ARE FREE TO IMPLEMENT MONETARY POLICY WITHOUT POLITICAL INTERFERENCE. Their powers are limited to electing a minority of board members, the right to attend the ordinary general meeting of the central bank where they also approve the minutes of the previous year’s meeting and the annual report of the bank, and the appointment of the external auditors.

The private shareholders are also entitled to receive a dividend of 10c per share per annum (before dividend withholding tax of 20 per cent). But no individual shareholder, or group of shareholders, can hold more than 10,000 shares. This is to prevent any concentration of power. This means that in any given year the maximum a shareholder can be paid in dividends (after dividend withholding tax) is a paltry ZAR 800.

E X P R O P R I AT I O N W I T H O U T COMPENSATION The EFF bill is styled as an amendment to the existing South African Reserve Bank

Act. The bill aims to change the ownership of the bank through nationalisation. The state would, under this scenario, own 100 per cent of the bank.

The bill also seeks to move functions currently entrusted to private shareholders to the minister of finance. These include the appointment of some board members and the appointment of external auditors.

Giving the minister the power to appoint certain board members doesn’t make sense given that the SA Reserve Bank Act currently stipulates that the President of South Africa appoints the majority of the board members (including the governor and deputy governors).

Giving the finance minister the power to appoint some board members would create two classes of board members—a nonsensical state of affairs.

More disconcerting is the fact that the bill makes no provision for any compensation for current shareholders.

The bill simply transfers ownership from shareholders to the state.

The proposed amendment goes as far as to state that the change of ownership will have no financial implications. This may be taken as confirmation that provisions on compensation were not inadvertently omitted or left to be considered later. The stated objective is clearly nationalisation without compensation.

This comes on the back of efforts to push for the expropriation of land without compensation.

Both moves set a dangerous principle and put South Africa on the dangerous slope of economic disintegration.

This article originally appeared on The Conversation Africa. Jannie Rossouw is the Head of School of Economic & Business Sciences, University of the Witwatersrand. In the interests of disclosure Rossouw holds shares in the SA Reserve Bank and previously worked for the central bank. He is a C-rated researcher by the NRF and received financial assistance from the NRF in support of his research.

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MARKETS

TRADE TENSIONS, INTEREST RATES AND THE LIKE:

THE BANE OF 2018

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By Diego Würgler, Head Advisory Solutions (Distribution) Middle East at Julius Baer

T

HE MACROS Julius Baer remains positive on the global macroeconomic picture for 2018. If it is true that some areas are slowing down in terms of ‘momentum’, we still benefit from a global, synchronised economic growth around the world.

The US economy remains in a good shape, as shown by the healthy numbers coming both from the labour and real estate market. The risk here is more of the economy to overheat due to the procyclical measures taken by the Trump’s administration (tax reform, infrastructure spending), thus requiring the Federal Reserve (Fed) to continue increasing

ASSET CLASSES Reality is that the MSCI World (a proxy for the global equity market) in US dollar terms has gained +2.8 per cent in 2018.

On the other hand, only the US market has performed well (+4.6 per cent for the S&P500). Europe (-3.9 per cent), Japan (-0.4 per cent) and Emerging Markets (-6.1 per cent, all numbers in USD terms) did not. Therefore, only investors exposed to the US-market have enjoyed some capital gain in 2018 so far.

The fixed income market (in US dollar) has been much more challenging because of the rising interest rates.

Unfortunately, it’s not uncommon to see 2018 performances for this segment at— three to five per cent—even for higher quality papers.

So far in 2018, gold has not acted as a safe haven asset class, with YTD (year to date) performance at -5.4 per cent, whereas crude oil has nicely rebounded

AMONG THE COMMONLY DISCUSSED THREATS FOR FINANCIAL MARKETS, WE CAN POINT OUT THE TRADE DISPUTES, THE FLATTENING OF THE US DOLLAR YIELD CURVE AND MORE BROADLY, THE US FEDERAL RESERVE’S INTEREST RATE HIKES.

interest rates. Therefore, a (mild) recession in 2020 should not be excluded.

The European economies have lost some momentum and political challenges remain serious. That said, we continue to believe that the macro picture is going to gradually improve in the long run.

Emerging markets are challenged

by US dollar interest rate hikes but are fundamentally much more resilient than in the past. At the same time, the rebounding oil price has helped big economies like Brazil and Russia to exit recession.

All in all, the global macroeconomic picture is in fact healthier than news headlines currently suggest.

by 16.6 per cent (WTI) this year.

For the remaining of 2018, we believe that the market environment will remain challenging for bonds. We tend to be on the prudent side as well for the commodity market. On the other hand, we are more constructive on equities, where we forecast positive returns (on average) for 2018.

We continue to see a big interest for real estate assets from Middle East investors, which probably has some cultural roots.

At the same time, we see some request for geographical diversification given some perceived uncertainty for the MENA region.

On the listed market, the preferred vehicle for local investors remains bonds, as they

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19

MARKETS

now pay a decent coupon and therefore offer a more attractive yield. Bonds summarise best the basic requirement for MENA investors which includes the simplicity, and generation of a yield with minimum capital risk.

Over the last few years, we also saw some interest for the international equity markets. In our view, this was probably due to a lack of better alternatives rather than a paradigm shift in terms of local investors’ mindset.

CHALLENGES IN CURRENT MARKET CONDITIONS Among the commonly discussed threats for financial markets, we can point out the trade disputes, the flattening of the US dollar yield curve and more broadly, the US Federal Reserve’s interest rate hikes. The latter is particularly relevant for investors as higher rates make bonds look relatively more attractive. Therefore, this might generate some changes in the asset class allocation, for instance, from stocks into bonds.

But even if you take all this into consideration, the current market remains driven by a global ultra-low interest rate environment. This creates a distortion in investors’ behaviour as they still target high single-digit returns. To achieve their (higher) objectives, they tend to increase their equity exposure. We believe that a portfolio’s strategic asset allocation should be defined by an investor’s risk-profile only.

That way, we can ensure a client’s portfolio always mirrors their ability and willingness to take investment risks.

ENERGY STOCKS ARE THE ULTIMATE ‘VALUE PLAY’ IN THE CURRENT MARKET. THE SECTOR IS EXTREMELY CHEAP AND DISCOUNTS A CRUDE OIL PRICE THAT IS WAY BELOW THE CURRENT LEVEL. 20

Diego Würgler

NAVIGATING INTO 2019 Julius Baer currently over-weights four sectors namely, IT (technology), financials, energy, and industrials. The IT sector is by far our preferred one. We like technology companies as they continue to offer high growth rates (something that is difficult to find in other sectors). In addition, IT stocks are much cheaper that commonly perceived, so that irrespective from their superior fundamentals they only trade in line with historical valuations. Finally, the IT sector has a low financial leverage, which means that the average debt level is very low; this is relatively positive in a context of rising rates.

Financial shares should benefit from any steepening of the yield curve. In addition, the Trump’s administration is pushing for less regulation in the financial industry which could open-up business opportunities at lower costs for US banks.

Energy stocks are the ultimate ‘value play’ in the current market. The sector is extremely cheap and discounts a crude oil price that is way below the current level.

THE CURRENT MARKET REMAINS DRIVEN BY A GLOBAL ULTRA-LOW INTEREST RATE ENVIRONMENT. THIS CREATES A DISTORTION IN INVESTORS’ BEHAVIOUR AS THEY STILL TARGET HIGH SINGLE-DIGIT RETURNS.

High dividends for energy companies should also support the sector.

Industrial shares tend to outperform later into the economic cycle, we believe we have already reached that stage. In addition, a more aggressive fiscal policy (think about infrastructure spending in the US) should naturally benefit industrial companies. The recent correction in the sector which was due to a negative rhetoric around the trade tension topic, could offer attractive entry points.

COVER INTERVIEW

Demir Avigdor

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MANAGING AFRICA'S GROWING PRIVATE WEALTH Banker Africa sat down with Demir Avigdor, Market Head, Africa & Europe Private Banking, Standard Chartered to discuss the state of the bank’s private banking offering on the African continent

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ince your appointment as Managing Director and Market Head for Standard Chartered Private Bank in Africa and Europe last year, what have you focused on?

My core focus since starting in the role last November has been to spend time with my Standard Chartered colleagues on the ground in Africa, to really build team expertise and ensure we are connecting our onshore and offshore franchises. This will enable us to really deliver the capabilities of our global footprint and find the best solutions for our African clients. This is critical for the success of the private bank in Africa.

I have also spent time meeting our clients across West, East and Southern Africa, understanding their unique situations and what we can do to help drive value for them, their families and businesses. Our clients have a range of needs, from wealth management to

Standard Chartered has a branch network across 16 countries on the continent.

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COVER INTERVIEW

In 2017 Standard Chartered launched their Private Banking Academy to create a training programme for their frontline teams.

succession planning and philanthropy.

Many of our clients are entrepreneurs with closely connected personal and business banking needs. Getting out and meeting clients in their home countries continues to be integral to achieving our growth aspirations in Africa.

How is Standard Chartered private banking positioned in the African continent?

Africa is a key market for Standard Chartered. We have successfully supported clients for over 150 years through our vast network of local offices. With our branch networks in 16 African countries and local market presence, we are able to offer bespoke business solutions to our clients who also often require private wealth

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THE BEST WAY TO MITIGATE RISK IS TO ENSURE YOU REALLY KNOW AND UNDERSTAND YOUR CLIENTS, THEIR NEEDS, THEIR BUSINESSES AND THEIR SPECIFIC MARKET CONDITIONS. Demir Avigdor, Market Head, Africa & Europe Private Banking, Standard Chartered

management. This enables us, uniquely, to deliver a complete one-stop solution to our African client base.

In 2017 we announced the launch of our Private Banking Academy in partnership with Fitch Learning and INSEAD, to create a bespoke training programme for our frontline teams.

This continued investment in our people ensures that we deliver a higher level of service and advice to our clients.

While addressing the needs of a growing and increasingly affluent client base, Standard Chartered as the only international bank with a major presence in Africa, also strives to contribute to the social and economic development needs of the continent. A recent example is our support for the Africa Local Currency Bond

There has been a clear shift towards socially responsible investing across the continent.

Fund on its first investment in Zimbabwe which will contribute to the community positively by generating clean energy.

What innovations in investment technology has Standard Chartered looked to leverage?

Rapid technological advances have shaped preferences of the new generation of high net worth individuals who are digitally savvy—they expect their interaction with banks to be efficient and convenient, yet still personalised, which led to the successful launch of our first digital bank in Côte d’Ivoire.

While we believe our clients still prefer human contact when making bigger investment decisions or engaging in issues as complex as legacy planning,

we also acknowledge that some aspects of wealth management may be vulnerable to disruption by new digital innovations.

Digitisation is a top-of-mind agenda for the Bank. In 2015, we announced that we would invest $3 billion into the Group’s technology infrastructure, and into strategic opportunities where we saw a competitive advantage. As part of this, we invested in a multi-year transformation programme to create a single, global wealth management platform to increase frontline productivity and provide faster, more personalised solutions via digital channels. To that end, we introduced the award-winning ‘ADVICE’ platform, an investment advisory ‘one-stop shop’ that offers our frontline colleagues all our investment ideas and advisory models at a glance.

In addition to ADVICE, we have enhanced our trading platforms across fixed income and equities with industry-leading capabilities such as the ability to price in real time. We are committed to investing in more innovative digital tools and enhancing our infrastructure to continuously raise the bar on our client experience as well as empower and advance our Bankers with the necessary innovative tools and know how.

How have you mitigated the risk of doing business in Africa?

The best way to mitigate risk is to ensure you really know and understand your clients, their needs, their businesses and their specific market conditions. Our vast local networks facilitate this and help us obtain valuable insight so we can better support our clients.

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COVER INTERVIEW

As an international bank focused on Asia, Africa and the Middle East, many of our clients are exposed to emerging markets. When we consider their investment portfolios, it is our role to mitigate risk through diversification based on their personal circumstances and investment appetite.

Our investment approach looks at the long-term picture for our clients, specifically their families and their aspirations for them.

Family and estate planning is generally at the heart of our clients’ interests and legacy planning and generational wealth transfer are key areas of our expertise. Supporting and preparing the next generation for wealth accession is an area of focus, with globallyheld programmes on financial education, philanthropy, leadership and sustainability.

These programmes help connect clients and their families across our footprint.

What changes have you seen in African investment behaviour through 2018?

Philanthropy and socially responsible investing are growing trends in the industry and these are increasingly evident in Africa. There is a clear shift towards socially responsible investing, otherwise known as ‘impact investing’. Supporting a positive social or environmental impact as well as achieving competitive financial returns is at the heart of impact investing.

To meet this growing demand, we have recently launched our own sustainable investment funds.

Wealthy millennials have also shown growing interest in innovations like digital platforms. The expectations and preferences of the new generation of investors have been shaped by technologies and this is bringing new standards to the industry in terms of how advice and investment products should be delivered. Achieving multiple, and sometimes conflicting, goals adds a degree of complexity to the process and the new generation value our customised, easily accessible, fast and convenient solutions.

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Avigdor said that digitisation initiatives are a priority for Standard Chartered.

DIGITISATION IS A TOPOF-MIND AGENDA FOR THE BANK. IN 2015, WE ANNOUNCED THAT WE WOULD INVEST $3 BILLION INTO THE GROUP’S TECHNOLOGY INFRASTRUCTURE, AND INTO STRATEGIC OPPORTUNITIES WHERE WE SAW A COMPETITIVE ADVANTAGE. Demir Avigdor, Market Head, Africa & Europe Private Banking, Standard Chartered

Another general shift has been the growing focus on intra-generational wealth transfer. As existing clients age and wealth is transferred to the next generation, this is becoming of increasing interest as clients seek to manage the complexity that surrounds wealth transfer. We have the opportunity to help our clients with their specific wealth planning needs and help them navigate this landscape.

What are your general thoughts on the current state of African economic development?

The number of new millionaires is growing steadily. We expect that the growth in ultrawealthy populations in Africa will outpace that of Europe and North America over the next decade, with the number of ultra-high net worth individuals growing by 30 per cent in Africa.

That being said, most entrepreneurs thrive in an environment that encourages investment. Excessive bureaucracy, poor governance and limited access to finance typically hinder growing businesses, and as countries in Africa remove these barriers, they will attract new business and investment to boost their economic growth.

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(CREDIT: PATRICE6000/SHUTTERSTOCK)

COUNTRY FOCUS

28

METHODICAL

PROGRESS Ghana has returned to impressive growth and continues to outperform many of its African rivals

I

n Banker Africa #46, the last time we turned our macroeconomic lens onto the West African nation of Ghana, we suggested that the country looked set to return to form after a difficult 2016.

Broadly this statement was true. 2017 proved to be a significant improvement over 2016 with the fiscal deficit dropping to six per cent of GDP in 2017, down from 9.3 per cent in 2016 according to the World Bank. This figure alone points to the commendable efforts on behalf of the authorities to engage in fiscal consolidation.

Furthermore, this figure was achieved mainly through expenditure cuts, with total revenue underperforming by 1.1 per cent of GDP. External debt accumulation also slowed with a debt to GDP ratio estimated at 69.2 per cent in December 2017 down from 73.4 per cent in 2016. The World Bank also noted that domestic revenue mobilisation efforts are a key priority for the Ghanaian Government, which the World Bank aims to support through technical assistance to the Ghana Revenue Authority.

The country’s tax base is relatively low with the 2018 African Economic Outlook placing an estimate of Ghana’s tax-to-GDP ratio at around 16 per cent.

MACROECONOMIC STABILISATION IS ONGOING. GROWTH PROSPECTS REMAIN POSITIVE, SUPPORTED BY STRONG OIL PRODUCTION. INVESTOR CONFIDENCE HAS IMPROVED, AS INDICATED BY A SUCCESSFUL ISSUANCE OF THE EUROBOND IN MAY 2018.

Annalisa Fedelino, IMF

Ghana’s economy is estimated to have grown some 8.5 per cent in 2017, up from 3.6 per cent in 2016. This growth boost stems mainly from an increase in hydrocarbon production. In addition,

Moody’s noted in a report released earlier this year that growth prospects have further been bolstered by the favourable ruling of the International Tribunal of the Law of the Sea (ITLOS) in September 2017 that Ghana had ‘not violated the sovereign rights’ of Cote d’Ivoire by developing the Tweneboa, Enyenra and Ntomme (TEN) oil fields and the development of the Sankofa oil and gas field.

Indeed, the Sankofa field alone is expected to provide approximately 180 MMscf/d (million standard cubic feet per day) for at least 15 years, which will be sufficient to fulfil half of Ghana’s power generation requirements. The Sankofa project is destined for entirely domestic consumption, meaning that is will help improve the overall stability and reliability of the gas supplies in Ghana.

“Ghana has a strong economic outlook over the next few years, supported by new oil and gas field developments coming on stream,” said Elisa Parisi-Capone, a Moody’s Vice President—Senior Analyst and co-author of the report. “Access to a more reliable power supply through

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COUNTRY FOCUS

domestic gas resources will bolster the government’s industrialisation strategy toward higher value-added products, in areas like agricultural processing.”

INFLATION SUBSIDES For July inflation came in at 9.6 per cent, down from 10 per cent in June, and down from its peak in January 2016 of 19.2 per cent. A moderate increase in the prices of non-food items, such as housing, water, and power helped drive pressures down.

Food inflation remained broadly stable.

This brings overall inflation closer to the Central Bank’s medium-term target of eight per cent inflation, plus or minus two points.

“Macroeconomic stabilisation is ongoing. Growth prospects remain positive, supported by strong oil production. Investor confidence has improved, as indicated by a successful issuance of the Eurobond in May 2018.

Inflation has subsided to below 10 per cent. The Government has stepped up structural reforms, particularly on public financial management and strengthening oversight over state-owned enterprises (SOEs),” said Annalisa Fedelino, the leader of an International Monetary Fund team that visited Ghana earlier this year.

“The Government’s commitment to achieving the end-year fiscal targets is encouraging. Available fiscal data suggest an increase in government spending— mainly due to frontloading of capital spending and goods and services—while revenue underperformed in the first four months of the year,” added Fedelino. “Thus, we welcome the Government’s intention to present a balanced and comprehensive fiscal package to Parliament at the time of the mid-year budget review in July. Such a package would help meet the fiscal objectives and support the implementation the Government’s development agenda.”

The Central Bank has been throughout this year undertaking a period of aggressive monetary easing having cut its policy rate from its height of 26 per cent in mid-2016

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Tullow oil Ghana TEN Project oil development platform: The TEN Project oil development off the coast of Western Ghana has proved an incredibly important discovery for the country’s economy. Seen here is a floating production storage and offloading facility operated by Tullow Oil, the operator and largest partner of the TEN Project site (CREDIT: NICKY LOH/ BLOOMBERG).

GHANA HAS A STRONG ECONOMIC OUTLOOK OVER THE NEXT FEW YEARS, SUPPORTED BY NEW OIL AND GAS FIELD DEVELOPMENTS COMING ON STREAM Elisa Parisi-Capone, Vice President—Senior Analyst, Moody’s to 17 per cent in May 2018, a four-year low.

In late July the Monetary Policy Committee of the Bank of Ghana, however, opted to maintain the rate at 17 per cent, the first hold this year.

Governor Ernest Addison noted that this move was made in light of the possible impact on inflation of pressure on emerging economies. Addison noted that the normalisation of US monetary policy, resulting in the strengthening of the US dollar and rising US yield rates have put pressure on emerging

market assets. Furthermore, the notable depreciation of the cedi against the US dollar in combination with inflationary pressures are likely the main culprits for the Central Banks decision to relax its monetary easing programme.

In addition, continued uncertainty of global trade relations and mounting geopolitical uncertainties lend support to the Central Bank’s prudent move to hold its policy rate, especially in light of Ghana’s commodity-dependent economy.

“The monetary policy stance remains appropriate and inflation is expected to continue to decline to the eight per cent target before the end of the year,” added Fedelino. “Responding to the gradual lowering of the monetary policy rate, lending rates have also been inching down. Recent exchange rate pressures are expected to be short-lived, provided that fiscal consolidation continues. A key priority is to strengthen foreign exchange (FX) management to help foster a deeper and more liquid FX market.”

GHANA

by the numbers POPULATION

GDP GROWTH

COMPETITIVENESS

10 8

29

Ranked 111

6 4

million

overall

2 0

5.48%

6.0%

Ranked 59

for institutions

out of 137

Projected in 2018 Projected in 2019 Source: IMF World Economic Outlook Database (July 2018)— estimated

Source: IMF World Economic Outlook Database (July 2018)— estimated

LONG-TERM TRENDS I 3-year averages 2014-16

2017-19

2020-22

Population (million)

26.9

29.0

31.3

GDP (USD bn)

38.6

51.8

68.2

1,435

1,785

2,178

3.8

7.1

5.2

Fiscal Balance (% of GDP)

-8.6

-5.3

-3.9

Public Debt (% of GDP):

71.8

66.9

62.3

Inflation (%):

16.7

10.6

8.0

Current Account (% of GDP):

-8.1

-4.2

-4.0

External Debt (% of GDP):

52.3

45.2

43.2

GDP per capita (USD) GDP growth (%)

ECONOMIC STRUCTURE GDP by Sector I share in % 100

2008-10 2011-13

80

2014-16

GDP by Expenditure I share in % 120

Agriculture

2008-10 2011-13

2014-16 Net Exports

90

60

Manufacturing 60

Investment

40

Other Industry 30

Government Comsumption

20 0

Services

0

Private Consumption

-30

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa – September 2018

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa – September 2018

TRADE STRUCTURE

EASE OF PAYING TAXES

Primary markets I share in %

Ranked 116 out of 189

EXPORTS

Switzerland 7.5% EU-28 9.1% India 18.7% China 13.2% Vietnam 5.6%

Source: IMF World Economic Outlook Database (July 2018)— estimated

Brazil 5.2% United Arab Emirates 14.6% Sub-Saharan Africa 5.9% Other 20.1%

IMPORTS

U.S.A. 5.4% Other EU-28 19.9% Belgium 5.8% U.S.A. 5.4% Other Asia ex-Japan 11.7%

Source: FocusEconomics Consensus Forecast Sub-Saharan Africa—February 2018

China 18.1% LatAm 5.4% MENA 6.8% Other 21.4%

37.4% total tax rate

Source: PwC Paying Taxes 2018 analysis

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COUNTRY FOCUS

PMI FALLS The Stanbic IBTC Bank Ghana Purchasing Managers’ Index (PMI) fell in July to 51.8, from 52.7 in June, a 22-month low.

However, the figure still remained above the crucial 50-point threshold that indicates an expansion in business activities over OUR NUMBERS

Banker Africa’s analysis of the top banks in Kenya has revealed some interesting results. In this chart we rank the ‘Best Banks’ in Ghana. The ranking is based upon a methodology which weights eight key financial metrics in order to provide a comprehensive view of the country’s ‘Best Bank’.

BEST BANKS NAME

RANK

Barclays Bank of Ghana

1

Standard Chartered Bank Ghana

2

GCB Bank Limited

3

Stanbic Bank Ghana

4

Zenith Bank Ghana

5

CalBank Limited

6

Guaranty Trust Bank (Ghana)

7

Fidelity Bank

8

Bank of Baroda Ghana

9

Societe Generale Ghana

10

Source: Banker Africa

Similarly, to the above chart we have also ranked Kenyan financial institutions in terms of fastest growth through four weighted financial metrics.

FASTEST GROWING BANKS NAME

RANK

Zenith Bank Ghana

1

Bank of Baroda Ghana

2

Fidelity Bank

3

GCB Bank Limited

4

Guaranty Trust Bank (Ghana)

5

CalBank Limited

6

Barclays Bank of Ghana

7

Societe Generale Ghana

8

First Atlantic Bank

9

Standard Chartered Bank Ghana

10

Source: Banker Africa

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US dollar appreciation against the Ghanaian cedi has put pressure on emerging markets such as Ghana as capital has retreated (CREDIT: BYKTZGL/SHUTTERSTOCK).

the previous month. Operating conditions have continued to strengthen month-onmonth continuously for past two-and-ahalf-years at this point.

Overall the rate of growth in business activity has continued to slowdown since May, despite a marginal output increase in July. The report points to anecdotal evidence that links the slowdown to projects reaching completion and lack of money in the economy.

Commenting on July’s survey findings, Phumelele Mbiyo, Head of Africa Research

THE PRIVATE SECTOR STILL SHOWED GROWTH FOR THE 30TH CONSECUTIVE MONTH. NONETHELESS, THE DECLINE IN THE PMI IN JULY SIGNIFIES A LOSS OF MOMENTUM IN GROWTH OF THE PRIVATE SECTOR. Phumelele Mbiyo, Head of Africa Research, Standard Bank

however, job creation accelerated in July as firms looked to clear backlogged work. Additionally, the weakness of the Ghanaian cedi against the US dollar has driven up input costs, which have been partially passed along to the consumer, resulting in higher output prices. “ E ve n t h o u g h n ew o r d e r s a n d output have been decelerating since May, purchase costs and overall input prices have accelerated in that time.

The deceleration in staff costs and output prices in July reversed a trend of acceleration since April,” added Mbiyo.

“Indications are that the slowdown in the pace of growth in private sector in July may be transitory. After all, the backlog of work increased in July. Furthermore, companies are increasing hiring, partly to improve operating capacity. The increase in input costs may be due in part to the depreciation of the Ghanaian cedi in May and June. Yet, with competition for customers strong, these input pricing pressures have not resulted in generalised inflation pressures.”

FINANCE SECTOR HOLDS STRONG Overall the Ghanaian financial sector is adequately capitalised, but weaknesses remain in some institutions, such as high levels of nonperforming loans (NPLs), can adversely affect overall stability and slowdown credit growth and investment.

The Bank of Ghana has made positive steps towards introducing reform measures to help address weaknesses inn the sector which would help improve the quality and availability of credit to the private sector.

Indeed, in early August the central bank consolidated five insolvent banks into a new, wholly government-owned bank called Consolidated Bank Ghana.

The Government capitalised the new bank with GHS 450 million and endowed it with a GHS 5.76 billion bond to cover the differences between liabilities and viable `assets of Consolidated Bank.

“Ghana creating Consolidated Bank supports financial stability when its commercial banking system faces high asset risks and is in the process of consolidating to meet new capital

AfDB promotes better access to mortgage finance in Ghana

at Standard Bank said, “The private sector still showed growth for the 30th consecutive month. Nonetheless, the decline in the PMI in July signifies a loss of momentum in growth of the private sector. The pace of growth in output, staff costs, output prices and new orders decelerated in the month.”

FocusEconomics in its Consensus Forecast Sub-Saharan Africa – September 2018 note that the deterioration in the PMI was underpinned by both lower growth in new orders and a cooling in output expansion. Despite this

The African Development Bank (AfDB) approved a $15-million senior loan to GHL Bank PLC, which focuses on mortgage finance, to enhance its mortgage loan portfolio and help develop an effective affordable mortgage finance sector in Ghana.

Ghana’s lower-middle and middle-income earners will now have greater access to long-term affordable mortgage finance. GHL Bank PLC was previously the only specialized mortgage finance institution in Ghana, helping to address the national housing shortage by providing long-term finance to lower-middle and middle-income new homebuyers. It has disbursed over $191 million in mortgage loans, benefiting more than 3,000 households, serving the majority of Ghana’s urban and suburban centres.

The senior loan will have multiplier effects on housing sector industries and employment in the mortgage value chain. It will complement the Government’s efforts to develop a self-sustaining long-term affordable mortgage market and encourage orderly urban development for providing basic utilities such as water, sanitation, roads and electricity.

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33

COUNTRY FOCUS

requirements. However, with the GDP costs of operationalising Consolidated Bank and the resolution of UT and Capital Bank earlier this year, we expect Ghana’s debt burden to reach 72.4 per cent of GDP by the end of this year, declining to 68.9 per cent by end-2019—a higher level than previously anticipated,” said Paris-Capone.

Amidst falling short-term interest rates Ghanaian banks have begun to shift their government securities exposures to longerdated government bonds at the expense of shorter-term treasury bills, increasing the duration of their investment portfolios.

Peter Mushangwe, a banking analyst at Moody’s said, “Ghanaian banks shifting their government securities exposures to longer-dated government bonds at the expense of shorter-term treasury bills is credit positive as it will help moderate the strain on the banks’ interest income amid falling short-term interest rates.”.

INFLATION - CONSUMER PRICE INDEX 3

25.0

Month-on-month (left scale) Year-on-year (right scale) 2

15.0

1

10.0

%

%

0

5.0

1

0.0 Jul-16

Jan-16

Jan-17

Jul-18

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

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

Ghanaian banks materially increased their exposure to longer-dated government securities in 2017

REAL GDP VARIATION IN %

Government stocks

15

Jul-16

Treasury bills

10,000 9,000 8,000 7,000

GHS millions

10

6,000 5,000 4,000

5

3,000

2,000

-5 2000

1,000

Ghana SSA World 2005

t-1 6 No v-1 6 De c-1 6 Ja n17 Fe b17 M ar17 Ap r-1 7 M ay -1 7 Ju n17 Ju l-1 7 Au g17 Se p17 Oc t-1 7 No v-1 7 De c-1 7 Ja n18

0

Oc

0

2010

2015

2020 Source: Bank of Ghana

Real GDP growth

Real GDP per capita growth

10 8 6 4 2 0

2016

2017

2018

2019

CPI inflation

8

20

6

15

4

10

2

5

0

2016

2017

2018

2019

0

2016

2017

Budget balance (% of GDP)

2018

2019

0

0

-5

-5

-10

-10

-15

2016

2017

Source: Data from domestic authorities/African Economic Outlook (AEO); figures for 2017 are estimates; 2018 and 2019 based on AEO calculations.

34

Current account (% of GDP)

2018

2019

-15

2016

2017

2018

2019

COUNTRY FOCUS

HOW CAN BANKS IN GHANA OVERCOME THE FINANCIAL CRIME CHALLENGE?

By Gaëtan Deblaere, Product Manager— Financial Crime Mitigation, Temenos

G

hana is taking financial crime mitigation very seriously. Last year, Ken Ofori-Atta, Ghana’s Finance Minister, stated that Ghana is considering measures to deepen collaborations between the Ghana Revenue Authority (GRA), the Forensic Unit of the Criminal Investigations Department and the Financial Intelligence Centre. This collaboration should ensure greater visibility of financial crime activities. In addition, an independent prosecutor will be appointed to address those suspected of financial crimes, which will be considered a felony.

This approach will certainly support financial crime mitigation, but is it enough?

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THE FATF BLACKLISTING RISK The challenge of financial crime in Ghana is a dire one. Just prior to Ofori-Atta’s statement, the country was highlighted by a report from the US State Department as one of the few where money laundering activities grew in 2016. In addition, there were two high profile money laundering convictions that same year. The report also found that, although Ghana’s AntiMoney Laundering Law (AML) is largely compliant with international standards, these laws were rarely applied.

This report led to concerns that Ghana would once again risk being FATF blacklisted in the West African sub-region.

Blacklisting would negatively impact the countries’ economy considerably from an international trading perspective,

and in turn impact banks in Ghana, both in terms of profit and efficiency. The Ghanaian Government is now making headways to avoid blacklisting. It is likely that banks will in time be more accountable where insufficient financial crime mitigation provisions are available.

We are soon likely to see associated fines and even criminal prosecution of those that do not adhere to international standards etc. Banks in Ghana now need to take financial crime mitigation very seriously, so what do they need to do to protect themselves?

THE CHALLENGE FOR GHANA The evolving money laundering methods, embargoed countries, evolving sanctions regulations and complying with frequently updated lists and AML (anti-money

laundering) procedures mean that monitoring is continually challenging.

While in Ghana, and elsewhere within the region, there are some established legal provisions relating to AML and counter terrorist financing (CTF), at present these are not specialised stand-alone laws.

These legal provisions are in fact usually embedded into general criminal offence frameworks, raising problems of their applicability to identify complex crimes.

In addition, the implementation of such measures may also be a challenge as some banks struggle with problems regarding capacity, resources and law enforcement.

Some of these elements cannot be easily addresses, however, an efficient and intelligent software solution can reduce resources, make it easier to adhere to laws and agreed best practice approaches. A flexible workflow management framework, with the ability to respond to changing customer profiles, changing types of transactions and new legislation should also be considered.

The cost of financial crime mitigation may also be a challenge. In particular, where institutions serve the poorest parts of the population, including microfinance institutions, cooperatives and rural/ agricultural banks. However, there are solutions available to meet the needs of specific institutions or sectors and consider all elements to reduce costs where possible. For example, a lot of these smaller banks don’t want to pay for a list subscription. A knowledgebase can be created to support these banks, offering a list of both private and public lists for them to access.

THE SANCTION SCREENING CHALLENGE For a system to function effectively, factors, such as the wide variety of languages used, or country names, also need to be considered. Effective software screening solutions use lexical analysis to match against not only country name variations, ISO country codes and deductions from

leads to assumptions of inefficiency and errors; these are issues that can be easily addresses with education and review.

Gaëtan Deblaere

city names, but also free text descriptions and financial identifiers. The solution must be sufficiently agile to spot even the slightest irregularity, utilising features such as ‘relaxed pattern matching’, where words are compared with a tolerance for approximation. Again, flexibility is key, as every institution will have its own needs, and rules may need to be applied according to requirements such as geographical area or business line.

THE CHALLENGE OF CONSTANT CHANGE IN MONEY LAUNDERING PATTERNS We should also consider education as well.

With FATF directives often being the main focus, the real challenges specific to banks individual situations are often overlooked.

Even when a bank has a sophisticated, agile software solution to effectively identify true money laundering cases, the systems in place need to be supported to continually adapt. Only then can optimum results be realised. At Temenos, part of the product licencing requires us to go back to clients every six months to re-teach and re-calibrate because we want our banks to use our products the right way. When banks do not use products correctly it

THE ACCURACY VS FALSE POSITIVES CHALLENGE Software should also be sufficiently intelligent to identify when a transaction is matched up legitimately yet there isn’t a sanction applied or an incident of money laundering. Potentially good customers may be treated unfairly unless they are identified as ‘false positives’ quickly and addressed effectively. It is therefore essential that software with a very low ‘false-positive’ alert rate while maintaining the requisite accuracy.

OVERCOMING THE CHALLENGES The right software should be able to effectively consider all the challenges listed and evolve with the changing environment.

It should screen a customer database, payments and any other type of transaction, and compare these against sanctions lists and customer profiles. At the end of the day, the right solution should go beyond addressing all the challenges African banks are facing. At Temenos, we have a suite of several applications that address the different issues discussed. In fact, we recently implemented with a Ghanaian bank who was focused on a comprehensive strategy for growth that needed to address these very same issues. These are common yet complex challenges, but the right solution should support a banks’ needs enabling them to focus on their customers with minimum impact from criminal activity.

Thus, the cycle is broken, the challenges are addressed and everyone is happy.

Ghana’s economic outlook is positive, the measures the Government is taking to prevent financial crime is another step toward underpinning economic stability and growth. At Temenos we recognise how technology is an enabler in terms of improving protection, customer service and managing cost but this has to be driven by good governance, education and people.

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37

ENERGY

POWERING CHANGE Banker Africa sat with NJ Ayuk, CEO, Centurion Law Group and founding member of the African Energy Chamber of Commerce to discuss the role that the energy sector has to play in African growth

Correcting the energy industry could solve many of Africa’s economic and political challenges, says Ayuk (CREDIT: KODDA/SHUTTERSTOCK).

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However, even though these companies may come and invest we need to find ways to transition to local content. You cannot turn over that obligation for training, developing and empowering your people to a corporation. Corporations are corporate citizens, they are not your citizens. They are beholden to their shareholders, they pay their taxes and they are there to make profit. Governments have an obligation to their citizens that they have the right education, the right environment, the right training, the right skills. This is where more attention needs to be paid.

Where does the African Energy Chamber of Commerce fit into this conversation?

We are an advocate and an advisor. The Chamber is never going to be 100 per cent the friend of the government or 100 per cent the friend of the industry, at the end of the day the Chamber is going to represent the conscience of the African oil and gas industry and represent Africa’s interests.

NJ Ayuk

W

h a t ro l e s h o u l d t h e energy industry play on the African continent?

At the African Energy Chamber we want to advocate for strong market driven issues. We are not going to succeed in Africa by hurting those that are creating jobs and you cannot treat big energy companies or oil companies as some sort of foreign entity. These are investors, they are putting money in.

We talk to policy makers and we talk to business community leaders and look at what energy companies do—they take the biggest risks. They go in and invest in exploration campaigns that may well yield nothing. Wells that are being drilled around Africa have only about a 17 per cent success rate, so you’re looking at around 83 per cent of exploration operations failing. That’s millions of dollars being poured into unsuccessful or noncommercial drilling campaigns.

THE GOAL SHOULD BE TO AFRICANISE EXXONMOBIL SO THAT WHEN YOU WALK INTO THE EXXONMOBIL OFFICE YOU SEE PEOPLE WEARING DASHIKIS. NJ Ayuk We are advocates on behalf of the entire energy sector, such as oil and gas, mining, power, but we are also strong supporters of local content, but this local content really needs to work. There’s one thing I always say, you cannot come in and say, ‘nationalise the oil sector’ and ‘kick out every European, American or Asian investor’. No, you have to work together, do joint ventures, transfer technology, empower local communities, create vehicles for them to become stewards of their economies so that there can be an actual transition between the big exports and the big European, American and Asian contractors with African contractors.

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ENERGY

Our goal should never be kicking BP or ExxonMobil out of Africa, that’s nonsense. That should never be the goal of any country or any people. The goal should be to Africanise ExxonMobil so that when you walk into the ExxonMobil office you see people wearing dashikis. People that will have worked in these companies where they have great training and great policies will be able to move from there and create great companies, whether they are the same oil company or create service companies that can provide services back to the oil companies and other companies.

These skills are so transferable—you can take them into government, you can take them into other public and private sectors and really do well with them. That is the real essence of it.

For now though, government has a real role to play. You have to incentivise this transition of economies, you can no longer have economies where the majority of jobs of most African economies are created by government.

When governments create jobs they create patronage jobs. You will see a president or minister announce that they are going to create 5,000 jobs—hiring teachers or labourers, but for what? For where? For them to work as security guards in buildings or for them to work as secretaries in government offices with nothing to do. It’s not organic.

It’s the government’s obligation and job to make sure that the kindergartens, nurseries, primary schools, and universities are done well and that the base is there. You have to look at it as if the companies are adding value. If you have the foundation and everything is there, then these people can become the experts. What the oil company always tells you is that this person needs to have these certain sets of skills, so you collaborate with the oil companies—and that’s what the chamber does. We bring in the oil company, the state, and the public sector and ask how do we collaborate to make sure that we work together to everyone’s benefit.

40

NJ Ayuk, CEO, Centurion Law Group

Also, on the contract base, some of the European, American, and Asian companies have spent years building strong contractual bases. You want to encourage a transfer of technology, you want to encourage technology sharing, so you need to work with these guys. You’re not going to take it by force, but you can work with them within this framework where they can share the technology, and everyone can benefit from it. It becomes something everyone can agree and can work with. It is all about developmental partnerships, not confrontation. You’re never going to develop a country by employing a confrontational style against businesses, against your biggest investors in the country.

The energy industry worldwide, in Europe, in America, is faced with a longterm human resource gap. They are struggling so hard in Europe and America to find people because most of the oil men are retiring, they are moving away. Now, if Europe and America, where they have the most industrialised economies, the highest skills in the oil and gas areas, are suffering and having a hard time finding new people to step into technical substance skillorientated oil and gas and mining and power jobs, what is going to happen to Africa? This is our time to compete, this is our time to prepare our people to be able to step up and compete and fill that gap because at the end of the day we still have to find new production, we still have

THE OIL INDUSTRY CAN NO LONGER BE SOME OPAQUE HIDDEN CLUB SITTING IN CIGAR FILLED ROOMS AND CUTTING DEALS WHILST WE ARE ON THE OUTSIDE, WE HAVE TO BE ON THE INSIDE. IF THE DOOR IS CLOSED WE WILL BREAK IT DOWN. NJ Ayuk

to power your continent, and still need to use the best technical and safety skills to really ramp production. You will see economies that have not prepared and cannot sustain the skill sufficiency and growth that is required and will become more dependent and less competitive in the new global market.

What is role will women play in the energy industry?

Seven out of 10 graduates in science, technology, engineering are women today.

That’s an untold story that nobody talks about it. The female population is also outgoing men rapidly too. In about 50 years you’re going to have a very dominate female population, so the question is how are we and how is the energy sector preparing for that.

Think about today. The African oil industry cannot be where it needs to be without a strong presence of women.

There are only maybe one or two women CEOs of oil companies around Africa, that’s it. In 2018 we should ashamed of ourselves. We should ashamed of ourselves because the role of women in this industry is really not being played right, it’s underplayed, it’s not talked about. More science students and engineering students coming out of college are women, so if you are really going to talk about a future that is strong, sustainable and reliable, how can you have that conversation without discussing the role of women in the industry.

Thoughts on the future?

The oil industry can no longer be some opaque hidden club sitting in cigar filled rooms and cutting deals whilst we are on the outside, we have to be on the inside.

If the door is closed we will break it down and we will get in, we have to sit back there, sit at those tables, making core decisions. Transparency doesn’t just mean for us alone, it means for everybody. We’ve got to level the playing field. If we have all these skills, education and drive and yet cannot work towards levelling the playing field and levelling the environment then we have not really met that challenge for my generation of Africans.

My generation has not accomplished anything in comparison to our descendants.

Look at the age when Mandela went to jail.

People at that age were forceful enough to give us our political liberation but our challenge is economic—to really create value and really hold leadership accountable

to make sure that they are not caught up in the same old games, that they are really trying to improve and empower economic and business transitions, we have to do that.

My generation, we have two emails, sometimes three or four, we have a Twitter account, Instagram, Facebook and WhatsApp and yet with so much technology, with so much knowledge and so many skillsets we are doing far less than our predecessors did. That poverty of ambition is what we have to really work against it. If you really want to change Africa, look at the natural sources. I never studied oil and gas at school, but I always drawn to that central message that if you want to make Africa better look after its natural resources because it is the cause of a lot of crises. Africa’s problems can be fixed if you pay attention to its natural resources and get it right. If you get it right it will really keep crises at a low because most of the crises and fighting is over of natural resources, whether it be mining in the Congo, or oil in Sudan, South Sudan and the Niger Delta.

You start seeing that if you do natural resources very well, and when you get that industry correct, a lot of crises and political instability goes away. It’s time for us to become important activists, and important stewards, and important drum majors for Africa in that industry, rather than sit back and be aloof and take a step back and wait for others to do for us what we can do for ourselves.

The African Energy Chamber The African Energy Chamber (AEC), which had been advocating for several months for upstream producers, service providers, downstream suppliers and governmental bodies throughout the continent, was formally established in July 2018. Backed by executives from oil & gas, power, and renewables industries, the AEC looks to bring a voice to the continent’s ongoing change and progression in the African energy industry.

As African nations revise their regulatory frameworks, such as the recent hydrocarbons regulations in Nigeria, Gabon and Congo, the AEC works to provide access to a pool of policy makers and experts to engage into a meaningful dialogue with industry stakeholders to shape policy.

The AEC also services international companies seeking to invest or expand in Africa by providing them with inside-track information and contacts to ensure successful partnerships and market penetration and expansion strategies.

bankerafrica.net

41

TECHNOLOGY

ZB FINANCIAL HOLDINGS GROWS MARKET SHARE

BY OVER 20 PER CENT WITH NEW DIGITAL SERVICES

Digitisation removes unnecessary processes and improves efficiency (CREDIT: SPAINTER_VFX/SHUTTERSTOCK).

42

Removing paper from front-end processes has provided customers with a smoother banking experience

I

n Zimbabwe, cash is no longer king: in 2017, amidst an ongoing liquidity crunch and cash crisis, 96 per cent of all payments processed in the country were made via mobile and electronic platforms. As consumers embrace new ways of managing money, ZB Financial Holdings (ZBFH) wanted to step up its services to meet changing needs and stay ahead of the competition in the retail space.

Customers today expect convenient digital products and a frictionless experience from their bank.

Providing commercial and merchant banking and other financial services through a number of subsidiaries in Zimbabwe, the bank is one of the country’s largest and most diversified financial services groups, with services spanning banking, investments, insurance, re-insurance, mortgage financing, transfer secretarial services and property development.

THE DIGITAL LEAP To remain relevant in the face of these changing dynamics, ZBFH has stepped up its digital game. As part of its strategy, the bank decided to upgrade its core banking system for retail customers, launching a unified digital platform, including mobile and internet banking offerings, built on Finastra technology, which would revamp the customer experience and increase market share for the bank.

Ron Mutandagayi, Group Chief Exe c u t i ve O f f i c e r a t Z B Fi na nc i a l Holdings, explains, “In our market space, mobility and customer experience have

Ron Mutandagayi, Group CEO, ZB Financial Holdings

become absolutely key to success.

Our view is that customers must be able to make transactions quickly and easily, wherever they are and whenever they want to. To deliver these kinds of capabilities, we knew that we needed to overhaul our processes, which were still mostly paper-based and manual, so that we could deliver a faster and more efficient service. At the same time, we wanted to enable a mobile-first, fast and frictionless digital experience. This would empower our customers to access up-tothe-minute information on their banking activities and perform transactions at their convenience.”

GROWING STRONG ZBFH has embraced digitisation, removing paper from almost all front-end processes to provide customers with a smoother banking experience. The new approach is helping ZBFH to win more customers and encourage existing ones to take up additional services. In addition, the bank is bringing innovative offerings to market, including the ZB Mobile Banking app, which gives customers a convenient and

secure way to manage their money on the go.

A reinvigorated customer experience and innovative offerings have helped the bank: • c ut complexity and costs from its operations • grow its digital customer base by 25 per cent from around 150,000 people to just over 205,000 • increase user activity with its banking services • grow overall market share by more than 20 per cent • g row profits by 36 per cent, from $11.4 million to $15.5 million “We are the first bank in Zimbabwe to go paperless,” states Ron Mutandagayi.

“The move has helped us cut complexity and costs from our operations, and sets us apart as a forward-looking bank, boosting our competitive edge. Our customers are extremely satisfied with the new mobile and digital offerings—they’re convenient and easy to use, and customers now have all the information and services they need at their fingertips.

“We’ve used Finastra systems for more than two decades, and we truly believe that it offers best-of-breed technology.

Choosing Finastra makes us part of an international community of financial services firms and puts us on a par with some of the best in the world.”

ZBFH will continue to pursue its digital transformation strategy, developing new capabilities that simplify business processes and improve the customer experience.

bankerafrica.net

43

TECHNOLOGY

THE TRUTH ABOUT AIS IMPACT ON JOBS

By Allan Leinwand, CTO, ServiceNow

A

ccording to a recent report from PwC, AI is expected to raise the global GDP, in 2030, by 14 per cent (approximately $15.7 trillion).

That being said, AI is seen by many as being either a hero or a villain. On one hand, AI is currently driving nearly every CIO’s agenda because it intelligently automates work processes, making it possible to do things that have never been done before. But on the other, many workers are scared of the rise of AI as they believe it is rising from humble beginnings to become a villain that will steal their jobs.

The truth is that some jobs will be lost, but many more will be created.

It is important to understand that fundamentally, AI is not strong at creative, interpersonal or physical work. It will be used for ‘decision support, not decision making.’ So, lets debunk a few myths.

REDUCE AND SIMPLIFY As workers, we want to use automation to get our jobs done. AI will free us from having to spend long hours analysing data and invest that time in achieving a better work-life balance.

Information technology, manufacturing, financial services and human resources will all see significant improvement and productivity gains because of AI. These industries have many repetitive tasks that can be easily automated, helping workers

44

Allan Leinwand

become more productive. For example, AI can streamline the onboarding process of a new employee. It can alert HR when background checks are completed and aid them with the creation of benefits packages and employment contracts.

It can help IT order and provision new equipment. Similarly, it can help the employee complete and send tax forms and direct deposit information to finance.

THE MUNDANE Workers want to move to more meaningful roles. In fact, according to the Society of Human Resource Professionals, workers, particularly millennials, want to ‘create outcomes within meaningful projects and may become impatient with mundane tasks.’ AI can automate the more mundane tasks allowing for new jobs to be created that are more fulfilling, strategic and meaningful. AI can help workers be more productive and efficient at their jobs, while learning new skills. In addition, AI can help workers become better organised, reducing stressors, improving productivity and overall job satisfaction.

Financial compliance is a great example of this. Until recently, the creation of expense reports and review of submitted expenses was a very manual, mundane process requiring hours and hours of review. In the cases of expense report review, only a sample of expense reports could be reviewed in order to hopefully identify some patterns of fraud in submissions. Now, not only can AI generate the invoices, but it can sort through the hundreds of expense reports, invoices and other transactions and identify potential areas of fraud, waste and mistakes by employees, vendors and others for humans to further investigate, saving their companies billions of dollars each year.

CUSTOMER SATISFACTION The idea behind AI is to create more satisfied customers. Because workers can focus more on the interpersonal and

INFORMATION TECHNOLOGY, MANUFACTURING, FINANCIAL SERVICES AND HUMAN RESOURCES WILL ALL SEE SIGNIFICANT IMPROVEMENT AND PRODUCTIVITY GAINS BECAUSE OF AI. THESE INDUSTRIES HAVE MANY REPETITIVE TASKS THAT CAN BE EASILY AUTOMATED, HELPING WORKERS BECOME MORE PRODUCTIVE. Allan Leinwand

creative parts of their jobs rather than the more mundane, they will treat customers better. In customer support cases, this will be done by employing AI to identify and provide a solution for the issue and utilising a human who can react to nuances for interpersonal communications. Customers will develop loyalty because their needs are met, and issues are resolved quicker, more efficiently and with a personal touch.

Let me give you an example. Years ago, many companies implemented phone trees to help route support calls more efficiently. All of us have been frustrated to get to the end of the menu realising that we must press ‘star’ in order to go back to the previous menu in order to talk to the right person. While this is automated support, it didn’t employ a combination of people and AI to do so. Rather than having to press the right button to move forward,

imagine answering a few questions at the beginning of the call describing what the issue is or what you want to accomplish, and immediately being routed to the correct person (yes, person) who will help you or to the right menu telling you store hours. This will speed up support, improve loyalty and create better satisfaction for customers.

CONVENIENCE One of the biggest benefits of AI is the convenience to customers. AI allows nearly every aspect of business to occur faster, from identifying and fixing support issues so that workers don’t have to drive into the office on weekends to fix a server, to providing more accessibility to information, services and more.

As an example, there seem to be ATMs on nearly every corner in most major cities and more bank branch locations than ever before. However, bank teller jobs have not been eliminated because of the rise of ATM machines. Yes, there may be less tellers in general, but their jobs are more valuable to customers and their employers. When one walks into a branch at a bank, there are dozens of workers providing better valueadded services with shorter lines helping customers to be more satisfied with the convenient service provided. More than likely the work these employees do have higher margins, enabling them to make more money for both themselves and their local branches.

In summary, while AI might result in loss of certain jobs, it is more likely that the amount of work each worker will need to complete will be reduced and simplified rather than eliminated.

Employees will feel more satisfaction in what they do because they can focus less on the mundane and more on the strategic. Customer satisfaction will increase because customers will have more human interactions, faster, with people who know how to resolve issues they have. In addition, customers will have more convenience than ever before.

bankerafrica.net

45

TECHNOLOGY

FUND RAISING: DISRUPTED Initial coin offerings are emerging as an alternative way for start-ups to raise capital says Blockchain Technology Capital

ICOs are essentially contracts which are digitized on to a blockchain (CREDIT: SASHKIN/SHUTTERSTOCK).

46

Mujassum Butt, Co-Founder and Managing Partner, Blockchain Technology Capital

I

nitial coin offerings (ICOs) are a new way of raising capital without giving up equity and ensuring founding teams can maintain power, execute and realise their vision without giving the company away.

Essentially at their heart ICOs are contracts which have been digitised on the blockchain. Depending on the type of company and its offering an ICO can either be the digitisation of value similar to any type of commodity or financial product which can be traded on an exchange and goes up and down in value or the digitisation of ownership such as giving up equity. The difference is the smart contract is captured on a decentralised blockchain, removing the needed for paper work, bringing transparency of ownership but also giving the ability of both the investor and start-up to raise capital through traditional fiat or crypto currency.

“The market however is currently not as well-regulated compared to traditional ways of fund raising which means its more driven by retail rather institutional capital,” said Mujassum Butt Co-Founder and Managing Partner Blockchain Technology Capital. “This has been a key issue for us and over the last two years and we have invested time and resource in building an ICO trading exchange platform

Asim Khan, Managing Partner and Co-Founder, Blockchain Technology Capital

working with financial regulators. Our ICO exchange platform is now regulated by the financial regulatory authorities in Canada, Estonia, Luxemburg and Switzerland.”

Blockchain Technology Capital’s new platform, CryptoCoin.Pro, looks to provide ICO services whilst being banking-friendly and maintaining regulatory compliance.

The platform looks to provide ICOs to a much broader audience of investors, covering all individuals that are interested in the project, rather han just those with an experience in the crypto environment.

“In any type of digital transformation, governments’ move slower than the market and our goal at Blockchain Technology Capital is to provide strategic advisory to government regulators and enterprise on what they should be doing and co-creating with them on how they should be doing it,” said Asim Khan, Managing Partner and Co-Founder, Blockchain Technology Capital.

“As the ICO market continues to grow governments are beginning to realise that in order to attract new advanced technology industries such as blockchain and artificial intelligence having a regulated but friendly environment for ICOs will attract talent and build vibrant ecosystems, as talent and technology always follow the capital,” added Mujassum.

bankerafrica.net

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INVESTMENTS

INVEST IN THE YOUTH Dr Cheick Modibo Diarra, former Prime Minister of Mali, discussed with Banker Africa the state of the international investment climate on the continent in the lead up to this year’s ALN Africa Investment Conference

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H

ow do international investors currently view Africa?

Africa is confronted with the same challenges as anywhere else in the world, everywhere you have international crime, drug trafficking, terrorism. Africa doesn’t escape that. However, when you look at Africa as it is today, and you look at the rising prices of commodities and look at the availability of better well-trained human resources, and their availability on the ground, this makes Africa a very attractive place—especially if you add to that the change in the political climate.

Many laws have been changed in countries to create an environment that is favourable to business. On top of that, democracy is actually gaining more traction across the continent. This has led to a climate whereby everyone is feeling more confident about the future of Africa and investors are looking at us in the most favourable ways.

Are there any sectors that investors are looking at currently and what are the up and coming areas should investors should keep an eye on?

The first area that will always interest investors in Africa are the mining and extraction industries. Africa is known to produce a lot of oil and gas, a lot of diamonds and gold. There are some people that are still investing in those areas, but on top of this we have three additional commodities now that are actually attracting a lot of attention.

One is the availability of a tremendous amount of arable land. For example, in my own country Mali, just in one region, the region of Ségou, we have over three million hectares of land that is arable along the Niger River. Out of that three million hectares only about 110,000 only have been exploited, the rest is just sitting there in the sunshine waiting for use. Investors are looking to develop this untapped agricultural base and to develop cattle, which we also have very favourable environment for, and raise a lot of sheep

Dr Cheick Modibo Diarra

and create modern slaughterhouses to export those to the world.

The second thing that a lot of people don’t look at is that from the Sahara Desert all the way down to the Kalahari Desert, underground and above ground, Africa is covered with freshwater. Freshwater is likely going to become one of the most challenging problems humanity will have to deal with in the 21st century. If investors were to come to Africa now to start mastering the art of extracting that water from underground sources and rivers— purifying it, transporting it and distributing it—then we will be ready to transport across the globe when the need arrives.

Finally, the third area is that of Africa’s youth. We have a very young population, over 65 per cent of the population is less than 35 years of age. Now if you take that population and you want investors to keep coming and people to keep investing locally and get the highest return on investment, instead of bringing working hands from abroad these young

people need to be trained and need to be educated. As such I think education is also an area that investors should look at. In Africa we need good training and vocational studies in schools that will make an educated and well-trained labour force available to investors in many other areas—such as agriculture and commodities extraction. For everything that gives us a competitive advantage we need trained young. Therefore, I think that education and training is another area that investors can look to in Africa.

What challenges are currently facing investors in relation to doing business on the African continent?

Africa is still suffering from an image issue. For the longest time possible Africa’s image and Africa’s agenda as far as security when it comes to investment is concerned has been set by international press without Africa itself getting involved in the creation of its own image. This is a lingering issue. Even during this

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INVESTMENTS

conversation, I started with discussing the fact that acts of terrorism are unfortunately occurring everywhere, on every continent in the world, but anything that happens in Africa is amplified hundredfold immediately, making the risk assessment for investors look like it is something extremely dangerous in comparison to investment elsewhere.

This is something that Africa is struggling with and investors coming in will have to do a lot of research and intelligence and to then realise that some of these figures are blown out of proportion. In reality Africa is becoming more stable, with more democratically elected governments and with more

IN REALITY AFRICA IS BECOMING MORE STABLE, WITH MORE DEMOCRATICALLY ELECTED GOVERNMENTS AND WITH MORE COUNTRIES ENACTING LAWS THAT GIVE INVESTORS MORE PROTECTION. Dr Cheick Modibo Diarra, former Prime Minister of Mali

countries enacting laws that give investors more protection. Additionally, sometimes these laws are not even at a country level, but they are regional laws. For example, ECOWAS, which is a group of 15 countries in west, Africa, has its own investment rules and it has the facilities for investors to go if they need to make a complaint.

The second area we need to talk about is that of high technology. For example, when we talk about agriculture the technology exists now to massively improve yield.

Tractors can be precisely controlled and nearly every square inch of arable land monitored for when it needs fertiliser and

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pesticides. We need people to master these new technologies—and this is why it is very important to start training people now. If we have to import that kind of knowledge, that kind of expertise, then it will take a big bite out of any return on investment. In my opinion those are two areas that people need to look at and be a bit shy about when looking to invest in Africa—especially when you require regularly available human resources you need in new areas such as advanced technology.

In regard to human resources, your emphasis has been on education and training. Is there anything else that can be done to develop the youth of Africa to facilitate the interest of foreign investors?

There are several layers to the youth of Africa. Some of the youth are very advanced, with access to technology, but they don’t have access to the financial resources to become entrepreneurs in their own right who are aware locally of what the needs are of the community. This dynamic extends across the spectrum, whether in the areas of communication, money transfer, or providing healthcare.

There are a lot of young people who have trained in the best schools around the world and have returned, but often don’t have access to the capital that they need to take ideas that they have to maturity and these ideas could be ground-breaking in terms of making big returns.

We need investors to look at this, all the way down to people that have basic education and need vocational training to enable them to work on the ground, to be able to make their investment work. This is a broad-spectrum issue, for instance we have very well-trained doctors here, healthcare is a big issue, investors can come and invest in the areas of health and get into a partnership with these welltrained doctors who sometimes lack the financial muscle to build the facilities that the community needs. To summarise, there is a wide spectrum of youth and a wide

spectrum of capabilities and competency within the level of training of our youth and each of those need to be looked at by serious investors because there is money to made across the board.

Can you talk a little about the role the ALN conference plays in bringing stakeholders together to discuss issues similar to these?

The whole notion of the ALN is to be able to allow investors, whether they are foreign investors from outside of Africa or within Africa, to be able to do business at any scale they want on the continent. This could be at a scale that spans one single country, all the way up to several countries.

We organise this annual meeting for ALN members in Dubai every year and use that opportunity to actually create a space for investors to come and talk to African decision makers and African businessmen so that it becomes an environment where people can talk, exchange, look at new opportunities and how they can work together and facilitate partnerships.

We chose Dubai because Dubai has become a place where everybody meets, whether from America, Europe, Asian, or Arab countries and Africa. It has become the gateway for all of those places.

This dynamic led us to choose Dubai because the city is building a bridge that will connect investors that come to our meetings to the continent of Africa.

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.

INVESTMENTS

HOW TO INVEST MEANINGFULLY INTO AFRICA There is more to Africa’s investable universe than listed equity, says Todd Micklethwaite, Client Solutions and Research, Sanlam Investments

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Todd Micklethwaite

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he opportunity set that exists in Africa presents investors with a sufficiently broad universe to bring positive, risk-adjusted benefits to institutional portfolios says Todd Micklethwaite, a member of the Client Solutions and Research team at Sanlam Investments.

But, Micklethwaite says, investors should adapt those strategies which work in more developed markets to what works best on the continent. To capture the true investment potential that Africa presents, one needs to understand how best to execute an investment strategy on the continent.

This, Micklethwaite argues, has not a l way s been the case wi th South African investors.

AFRICAN LISTED MARKETS ARE EVEN MORE ILLIQUID THAN YOU THINK African public equity markets are very different from their more developed peers with regard to accessibility, correlation to external factors and liquidity. Investors accessing listed markets are inhibited by the limited volume of daily trades, which opens them to the risk of particularly poor fund performance should investors require significant liquidity. This was seen from late 2014 through 2016, when as little as $75 million in stock was traded per day across the continent. An efficient fund manager may have been able to participate in five per cent of that daily trade, but it would still have limited them to around $4 million in trades per day.

BUT, THERE’S MORE TO AFRICA THAN JUST LISTED EQUITY… Across African markets, there is a significant discrepancy between the stocks listed on the market and those that are actually accessible to investors.

Furthermore, the investable universe in even the larger markets is not a reflection of underlying growth in those economies.

CHART 1: DOMESTIC CREDIT TO THE PRIVATE SECTOR BY BANKS (% OF GDP) 160% 134%

140% 120%

96%

100% 80%

64%

60%

49%

45%

40%

46% 29%

20% 0%

East Asia & Pacific

Europe & Central Asia

Central Europe and the Baltics

Latin Middle East America & & North The Caribbean Africa

South Asia

SubSaharan Africa

Source: World Bank, 2016

CHART 2 1400 1300 1200 1100 1000 900 800 700 600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37

Price Level Starting at 1000

This limitation would have been exacerbated for larger funds; for those managers with funds that had grown towards $1 billion, this would have equated to an ability to trade less than 0.5 per cent of their fund per day. As a result, it could have taken anywhere between 200 and 300 days to rotate or liquidate an entire fund. Investors in these funds learnt this lesson the hard way, with performance suffering to a degree from which many can possibly never recover.

Considering these risks, it is startling to note that most listed equity funds operating today have redemption terms shorter than fortnightly and, in many cases, daily! The risks of investing in a fund with anything less than quarterly liquidity are significant, with long-term investors unfairly prejudiced by the actions of those of a shorter-term mindset.

Seasoned African-listed equity fund managers not only limit the capacity of their funds and have longer redemption and subscription terms, but they also broaden the scope of their mandate beyond the ‘investable’ benchmarkcognisant universe. Where fund managers are not forced to invest with liquidity as a primary priority, more scope exists to find the best investment opportunities on the continent (over time, benchmarkcognisant managers tend to run portfolios that more closely resemble the MSCI Africa, the 35 largest and most liquid stocks out of a universe of over 1,200). In Africa, the closet index managers tend to underperform their peers, often markedly, since Africa investing is very much a stockpickers paradise.

Time in Months since July 2015 Global Equities (MSCI ACWI) Africa Equity (not benchmark cognisant) Global Government Bonds (GLOUS) Africa Equity (MSCI EFM Africa ex ZA) Global Cash (Libor) Africa Equity (S&P All Africa ex-South Africa Capped) Africa Credit Source: Sanlam Investments; Bloomberg, 2018

Investors therefore need to widen their net beyond listed markets if they want to capture the wider growth opportunities across the continent.

The case for investing into private credit in Africa is compelling. The International Finance Corporation estimates that the credit gap for small and medium-sized enterprises (SMEs) in Sub Saharan Africa is currently $70 billion to $90 billion per annum. This implies scope for an additional 300 per cent in advances over the current estimated levels of loans being extended to this market. The opportunity in the region is attractive relative to its global peers, as can be seen from the chart 1 which shows the World Bank’s estimation of the state of credit funding in Sub Saharan Africa relative to other markets.

The opportunity that exists for institutional investors is due to the dearth of finance on offer from local banks (that do not have the capacity to fill the gap) and the large international banks (which are increasingly steering clear of this sector due to their Basel III solvency obligations).

Without taking on excessive levels of risk, investors are able to achieve US dollar returns in excess of Libor plus seven per cent per annum on a consistent basis, by investing into African private credit.

Chart 2 shows historical returns for a relatively conservative African private credit portfolio alongside a range of other non-SA asset classes over a three-year period to 30 June 2018.

The first notable element is the outperformance achieved through the

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INVESTMENTS

WHAT DOES AN ALLOCATION TO AFRICA EXECUTED IN THIS WAY B R I N G TO A N I N ST I T U T I O N A L INVESTOR’S PORTFOLIO? We built a model which uses a traditional mean-variance optimisation methodology with long-term historical and adjusted f o r wa r d - l o o k i n g ex p e c t a t i o n s f o r traditional local and global asset classes; and a correction for stale pricing present in African asset classes. For purposes of this article, only listed equities (unconstrained) and private credit were considered for inclusion in an African allocation. The negative and zero correlations exhibited by these African asset classes relative to the traditional assets led to their inclusion and to improvements in the efficiency of overall portfolios (as can be seen in chart 3).

Chart 3 shows a definitive improvement in the risk of every fund that included Africa relative to the same targeted return profile.

Notably, the diversifying characteristics of the African asset classes resulted in a maximum 10 per cent allocation in each of the ‘optimal’ portfolios shown above.

Furthermore, the bias within the Africa allocation moved entirely towards private credit as the target margin above inflation increased (as reflected in table 1).

It is worth noting that, in addition to the risk-return benefits outlined above, an investment into private credit has liquidity advantages over its private market peers— the weighted average duration of the portfolio modelled was two years.

THERE’S MORE TO ‘IMPACT’ THAN INFRASTRUCTURE INVESTMENT Although investors have traditionally focused on infrastructure when a key driver for their allocation to Africa is the

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CHART 3

13% cpi+6

12% cpi+5

11%

Return

unconstrained approach to investing in listed African equity markets relative to the major listed equity benchmarks. The second striking element is the consistency of returns delivered by an African private credit investment, relative to both African equities and global asset classes.

cpi+4

10% cpi+3

9% 8% 7% 6%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

Standard deviation With Africa

Without Africa

Source: Sanlam Investments; 2018

TABLE 1 CPI+3%

CPI+4%

CPI+5%

CPI+6%

Africa Listed Equity

4.9%

0.0%

0.0%

0.0%

Africa Private Credit

5.1%

10.0%

10.0%

10.0%

Total Africa

10.0%

10.0%

10.0%

10.0%

potential impact of that investment, many investors are identifying the critical credit funding gap as an equally noble cause.

It is certainly an honourable endeavour to support the growth of Africa’s capital markets and, equally so, to broaden the financial inclusion of Africa’s citizens. The inability to access debt capital is not limited to corporate entities and local banks, but also micro-SMEs and individuals. Apart from funding institutional borrowers, private credit funds are indirectly able to assist in servicing the individual and microSME market by providing debt capital to reputable micro-finance organisations that operate in this sector. Unlike borrowing for private use in more developed markets, such borrowing in Africa is not used by individuals for consumption but rather

to fund necessary expenditure related to housing, education, small-scale agriculture and small business.

CONCLUSION As an African country, South Africa’s growth is inextricably linked to the continued development of the African economies and the communities with which it engages, and institutional investors in South Africa have a critical part to play. Historically, investors have had few doubts about investing billions of dollars into assets outside the continent.

Treasury has now opened the door further for investors to make an impact on the continent, where opportunities abound for earning attractive and consistent riskadjusted returns.

INVESTMENTS

Najwa El Iraki

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THE NEXT PINNACLE IN INVESTMENT Najwa El Iraki, Founder & Managing Partner at AfricaDev Consulting, speaks exclusively to Banker Africa about the investment challenges facing the continent

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hat role do you play in the growth of African business?

Through AfricaDev Consulting, we support international businesses in their African expansion success. We play a key role in helping them to grow in the continent by leveraging on a deep understanding of local markets in particular in North Africa, as well as using a network of partners in Sub Saharan Africa.

We work mainly with the private sector, which is a driving force of Africa’s growth, providing business development for financial institutions and digital services companies. We also help entrepreneurs who serve as the spark plug in Africa economy’s engine carrying out financial advisory assignments notably M&A activities and fund raising for private equity and venture capital.

Where have you seen the most interest from outside parties to invest in the continent?

In terms of geography, we can observe a certain interest for East Africa for countries such as Kenya, Rwanda and Ethiopia.

In terms of sectors, most interest expressed to us has been in agribusiness, e n e r g y, t r a n s p o r t , h e a l t h c a r e and education.

If we take the example of Morocco where we are most active, current major investments are in automotive, aerospace, agribusiness, logistics and renewable energy.

Does the African continent have an investment image problem? If so, how can we address this?

I would say that the continent has an investment image problem for those

who do not know Africa and think that it is slipping away. Investors in Africa are overwhelmingly positive, while those not there can be unfailingly negative.

Fo r i n s t a n c e , I n o t i c e d d u r i n g roadshows in the US that there was a general lack of awareness of what is happening in Africa; also, when you go to global conferences, rather than Africa focused ones, very few people show an interest in the continent.

The continent is actually on the edge of economic take-off similar to those seen so dramatically in China and India and it is not surprising that investors from those two countries have a keen interest in Africa.

More and more investors see Africa as the ‘final frontier’ as emerging markets continue to mature. With a population of about a billion and significant natural resources, the continent has been growing in popularity among investors over the decades. Even though, there are real, structural issues at hand in many African economies, there are incredible opportunities for growth, with more than 20 African countries that are expected to grow at a CAGR at five per cent or above until 2030.

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To address Africa image issue, we need to continue building awareness and momentum for increasing trade and investment in Africa, for example, more and more Africa investment rising roadshow tours could be organised to showcase the tremendous business and investment potential in Africa and the forecasted trajectory of its economic growth. Perceptions on doing business in Africa would need to be reshaped by bringing opportunities to international companies and forge stronger connections and partnerships between international investors and African private sector leaders in key growth sectors.

There should be a call to action, meaning to lead and not wait for international investors to come to Africa. Improving knowhow, connecting networks, mentoring new

investors, organising transactional events, shaping policy and encouraging greater levels of investment are all part of growing a stronger culture of investing in Africa.

What would be the first step that you would recommend to African companies looking to move beyond their own domestic borders?

African companies looking to move beyond their own domestic borders should look at becoming pan-African and first develop a strong position in their home market, use that as a base for expanding into new markets, adopt a long-term perspective, invest in talent, and build trustworthy partnerships. Thriving in those business markets will require them to develop a detailed understanding of

THE CONTINENT IS ACTUALLY ON THE EDGE OF ECONOMIC TAKE-OFF SIMILAR TO THOSE SEEN SO DRAMATICALLY IN CHINA AND INDIA AND IT IS NOT SURPRISING THAT INVESTORS FROM THOSE TWO COUNTRIES HAVE A KEEN INTEREST IN AFRICA. Najwa El Iraki, Founder & Managing Partner, AfricaDev Consulting

each country—including the very different growth and stability/risk profiles—and develop sales forces able to target Africa’s relatively fragmented private sector.

The best-performing regional champions in Africa to date have been patient and built a wide footprint.

What role does the African banking and financial services industry play in supporting growth?

Generally speaking, a healthy and vibrant economy requires a financial system that moves funds from people who save to people who invest. Financial intermediaries and financial markets play this role by moving huge flows of funds throughout the economy that in turn affect businesses and the production of goods and services. Financial systems are therefore the lifeblood of an economy.

In Africa, the banking sector has developed significantly in recent years while the insurance market is still underdeveloped in most countries and the capital markets still require substantial investment and improvements in regulatory capacity.

Iraki singled out energy and agribusiness in particular as sectors with investment interest (CREDIT: INGEHOGENBIJL/SHUTTERSTOCK).

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One of the contributing factors to the growth of banking in Africa pertains to the rapid rise of pan-African banks. Over the last decade, big local banks have emerged and gone regional. Among the best-developed banking sectors in Africa is that of Morocco, where penetration is rising rapidly (financial inclusion is over 60 per cent). Morocco’s institutions include some of Africa’s largest banks, and several have become major players on the continent such as Attijariwafa Bank, which is ranked in the top 10 in Africa.

Some of the other larger African banks that expanded their footprint include Ecobank (Togo), United Bank for Africa (Nigeria), Standard Bank (South Africa), etc.

As a result, there has been increased banking activity in Africa, which is itself a key driver of growth. M&A deals allow successful local businesses to expand and join forces with others to offer scale.

Private equity funds can offer companies access to borrowing at an affordable rate.

Infrastructure deals can allow governments to provide amenities which spur further growth, while sovereign bond issues enable them to raise capital.

EVEN THOUGH, THERE ARE REAL, STRUCTURAL ISSUES AT HAND IN MANY AFRICAN ECONOMIES, THERE ARE INCREDIBLE OPPORTUNITIES FOR GROWTH, WITH MORE THAN 20 AFRICAN COUNTRIES THAT ARE EXPECTED TO GROW AT A CAGR AT FIVE PER CENT OR ABOVE UNTIL 2030.

Najwa El Iraki Along with this, there has been a step change in the introduction of cards, ATMs and increasingly, mobile banking. In countries such as Nigeria, mobile phone usage is as high as 90 per cent, even while 56 million Nigerians live without access to electricity. In that sense, the banking sector in Africa plays the role of a transformative engine. It will seek to replace existing traditional banking models with models more appropriate to addressing the urgent issues of financing much-needed development and infrastructural projects on the one hand; and, on the other hand, making banking more accessible to the majority of the population at a cost that they can afford.

Should banks be able to tap into the large ‘under/unbanked’ and ‘uninsured’ populations across the continent, it could lead to a significant increase in new deposits and premiums, respectively. Also, even at lower profit margins, the benefits associated with leveraging economies of scale should contribute to returns on the bottom line.

So, while not without challenges— including conceptual and institutional challenges faced by central bankers and financial regulators—Africa’s financial services sector presents compelling opportunities that are crucial in achieving the triple aim of financial stability, growth and equity.

What are the key challenges facing companies looking to invest in Africa?

There are many challenges facing companies looking to invest in Africa.

Beyond political risks linked notably with regional conflicts and corruption, key challenges include:

• Lack of Infrastructure. Africa has a low human density and per capita income.

This makes it difficult for companies to get the electricity, roadways and other necessary components to operate in some areas.

• Lack of bankable projects in the region.

Apart from general investment barriers, infrastructure projects are coupled with completion risks, performance risks and revenue risks, which effects the project’s overall ‘bankability’.

• Lack of regional integration/local regulations. There are multiple jurisdictions, too many trade zones and unharmonised local regulations including foreign investment restriction rules in certain countries e.g. Tunisia or Algeria, exchange controls, ownership restrictions etc.

The African Development Bank has estimated that the lack of regional integration has had an economic cost of three per cent of GDP over the last decade. Integrating Africa is one of the African Development Bank’s main goals for transforming the future of Africa. Ultimately, the creation of a legal framework that has cross-border enforcement authority would expand the possibilities for companies to operate in the region and provide for more liquidity and diversification in the markets.

Najwa El Iraki is the Founder & Managing Partner of AfricaDev Consulting Ltd, a business development and financial advisory firm. She is also the Managing Director in Morocco for Opportunity Network, a global fintech matchmaking platform headquartered in London that connects CEOs worldwide for business opportunities.

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AWARDS

BANKER AFRICA—WEST AFRICA BANKING AWARDS 2018

RESULTS ANNOUNCED The results are in for the annual Banker Africa—West Africa Banking Awards 2018

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he annual Banker Africa—West Africa Awards is a programme open to all banks and financial institutions in the region. The aim of the Awards is to recognise outstanding performance and excellence in the financial services industry.

Shortlists for the awards were compiled by our group of experts before voting opened on www.bankerafrica.com.

The West Africa Awards are designed to reward innovation and the ability to gain market share. The winners were selected by the registered readers of CPI Financial products and services—in other words, your peers in the financial services industry.

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

The financial institutions that win one or more of the Banker Africa Awards in 2018 and in future years will be those offering best-in-class services that meet the needs and exceed the expectations of their customers. They will, truly, be winners.

In each of four regions, North Africa, East Africa, West Africa and Southern Africa, we hold separate Awards competitions.

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THE RESULTS This year institutions were shortlisted across 15 categories, the results of which are: REGIONAL Best Retail Bank West Africa Best Commercial Bank West Africa Best Corporate Bank West Africa Best Investment Bank West Africa Best Islamic Bank West Africa Most Innovative Bank West Africa

WINNERS GCB Bank GTBank (Ghana) Guaranty Trust Bank (Nigeria) Rand Merchant Bank (RMB) Nigeria Banque Islamique du Sénégal GTBank (Ghana)

COUNTRY AWARDS Best Retail Bank – Ghana Best Commercial Bank – Ghana Best Corporate Bank – Ghana Best Online Platform – Ghana

Fidelity Bank Ghana GTBank (Ghana) GTBank (Ghana) GTBank (Ghana)

Best Retail Bank – Nigeria Best Commercial Bank – Nigeria Best Corporate Bank – Nigeria Best Online Platform – Nigeria

Guaranty Trust Bank (Nigeria) Zenith Bank Access Bank First Bank of Nigeria

Best Bank – Cote D’Ivoire

SGBCI (Société Générale de Banques en Côte d'Ivoire) Ecobank Sénégal

Best Bank – Senegal

AWARDS

ANNOUNCING THE 13TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS The industry’s most respected Awards programme returns to Dubai this December, with this year’s categories announced below

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he 13th annual Islamic Business & Finance Awards is fast approaching.

On 6 December, some 200 Islamic bankers and financiers from across the Middle East and Africa are set to gather at the Godolphin Ballroom at Emirates Towers Hotel in Dubai.

Professionals from across the Islamic economy will cast their votes across the more than 30 voted-for categories in an online poll to be held at www. islamicbusinessandfinance.com and www.cpifinancial.net. Last year, nearly 9,000 votes were cast across 37 voted-for categories.

The top award will be based on analysis of audited financial statements set to be published in the annual Islamic Business & Finance supplement Leaders in Islamic Finance, to be released in conjunction with the Awards. The supplement details exemplary performance across all categories, including the greatest change in assets across all banks in the industry.

Last year, the top Award of Best Islamic Bank went to Dubai Islamic Bank, who in 2017 entered the ‘billion dollar profit club’.

The Islamic Business & Finance Awards programme, supported by the Dubai International Financial Centre, is committed to finding and rewarding excellence from across the Islamic economies of the Middle East and Africa, with a sister Awards held each year in Southeast Asia. It is designed to highlight, encourage and reward the exceptional performance and growth of

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the international Islamic business and finance community.

“This year’s Awards marks a dozen years since CPI Financial and its groundbreaking publication Islamic Business & Finance have honoured the top institutions and individuals in the Islamic finance Industry. The industry is at a pivotal point in its development, which has thus far been extraordinary. Technology and product innovation are needed now more than ever, and we are proud to be able to honour those that are pushing the industry forward when it is most vital,” said Tony Long, Chief Executive Officer, CPI Financial, the publisher of Islamic Business & Finance Magazine.

2018 Categories for Islamic Business & Finance Middle East and Africa Awards: Best Corporate Advisory Best CSR in Islamic Banking - KSA Best CSR in Islamic Banking - Kuwait Best CSR in Islamic Banking - Syria Best CSR in Islamic Banking - UAE Best Customer Happiness Best Development Bank Best Digital Bank Best Digital Bank - UAE Best Human Resources in Banking - KSA Best Investment Bank Best Islamic Asset Manager Best Islamic Bank - Africa Best Islamic Bank Best Islamic Banking Solutions and Products Best Islamic Corporate Bank Best Islamic Finance Company Best Islamic Fintech Company

Best Islamic Home Finance Best Islamic Investment Fund Best Islamic Retail Bank - Egypt Best Islamic Retail Bank Best Islamic SME Bank - Egypt Best Islamic Trade Finance Best Islamic Window - Oman Best Islamic Window - UAE Best REIT Manager Best ReTakaful Operator Best Savings Product - Oman Best Shari'ah Compliant Fund Best Sukuk Arranger Best Training Institute Banker of the Year Excellence in Global Islamic Finance Best Social Responsiblity Programme – KSA

THE LONG VIEW

ARE YOU BEING SERVED?

By Tony Long, CEO, CPI Financial

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came across an article published in the South China Morning Post a few months ago about how China Merchants Bank have opened a branch in Shanghai ‘manned’ entirely by ‘smiling’ robots equipped with an array of facial recognition (FR), artificial intelligence (AI) and virtual reality (VR) capabilities.

Beside the slightly surreal images in the article of people interacting with the robots, it really hit home to me just how close we are to these technologies combining to deliver the kind of services that many thousands of retail banking staff are already being replaced by.

Now this may all be a clever PR stunt aimed to demonstrate how far we’ve come with these technologies, but just because we can do something, it doesn’t always mean we should.

Which begs the question, if we are all being conditioned to self-serve through mobile banking apps and interface with virtual assistants, will we ever want to go back to interacting with a human substitute, either in Islamic banking or in many other industries?

China Merchants Bank uses a bot on WeChat to handle 1.5 to two million queries a day, a workload equivalent to around 7,000 human staff, and many people are already saying that they would prefer to engage with a virtual assistant powered by AI than a human being.

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Tony Long

THE TRUTH IS THAT SERVICE REMAINS KING, BUT WHEN EVERYONE IS DELIVERING THE SAME LEVEL OF SERVICE, CUSTOMER EXPERIENCE MAY WELL BE THE DEFINING ELEMENT OF SUCCESS. Tony Long

The trouble with humans is that they are, well, human. In a lot of retail industries, service levels tend to be at the lower end of most customers’ expectations, and many fail to even live up to those.

Usually you have to look to the higher margin categories, where quality, luxury, prestige and exclusivity are priced in to find a level of service that is truly focused on customers’ needs and preferences, but even here, AI is making advances into the wealth management sector and other premium financial services in leaps and bounds.

And whilst the tech industries that disrupt everything from shop assistants to asset managers will continue to attract talent in droves, we are only at the beginning of this fourth revolution and there is unlikely to be enough talent to go round, and we are already seeing advanced AI skills commanding huge salary premiums in the global technology market.

The big challenge for the banking and financial services sector is how is it going to attract the kind of talent it needs to serve its future customers when the future for many roles is so uncertain?

PwC’s recent UK Economic Outlook report confirmed what many in banking and financial services industry regard as inevitable, forecasting that between 2017 and 2033, AI will create 18 per cent more new jobs, but at the same time, displace 25 per cent of existing ones, resulting in a loss of 77,000 jobs in the UK financial and insurance services alone.

The good news was that overall the displaced roles are expected to be matched by new ones, at 20 per cent on either side, but industries like manufacturing, wholesale and retail as well as transportation will be the hardest hit, along with financial services.

The truth is that service remains king, but when everyone is delivering the same level of service, customer experience may well be the defining element of success.

THE VIEW

PHOTO OF THE MONTH

Climate scientists, user groups and other stakeholders have met in Kigali to deliberate the regional consensus climate outlook for the October-December 2018 rainfall season. Minister of Environment Vincent Biruta officially opened the 50th Greater Horn of Africa Climate Outlook Forum (GHACOF50). The multi-day event includes integrated workshops under the theme: Promoting Gender-Sensitive Weather and Climate Services. (CREDIT: MINISTRY OF ENVIRONMENT - RWANDA/FLICKR)

South Africa recorded the highest share of PE exits (2007 – 2017) Share of private equity exits South Africa

43%

West Africa

23%

North Africa

14%

East Africa

10%

Southern Africa Central Africa

9% 1%

Regionally, South Africa dominates as the market with the most private equity exits over the past decade although exit activity in North Africa particularly increased in the last two years.

Per country, over the 2007-2017 period, exit activity was also much higher in South Africa (43 per cent), Nigeria (eight per cent), Egypt (eight per cent), Kenya (six per cent), and Ghana (five per cent) (CREDIT: AFRICAN PRIVATE EQUITY AND VENTURE CAPITAL ASSOCIATION/ATLAS/QUARTZ)

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