TAR OCT NOV 2019 TOP 200 AFRICAN BANKS

N° 109 • OCTOBER-NOVEMBER-DECEMBER 2019

www.theafricareport.com

THE AFRICA REPORT

AFRICAN BANKS get ready for disruption

SOUTH AFRICA Cyril Ramaphosa’s inner circle MUSEVENI INTERVIEW ‘Uganda needs East Africa for prosperity’ Aliko Dangote

INVESTIGATION The darker side of mobile banking

QUARTERLY EDITION • N° 109 • OCTOBER - NOVEMBER - DECEMBER 2019

Pioneering a new Nigeria

ETHIOPIA Abiy tries to keep it together

32-PAGE SPECIAL

From L-R, Kayode Fayemi, Jim Ovia, Tiwa Savage

JEUNE AFRIQUE MEDIA GROUP INTERNATIONAL EDITION

Algeria 610 DA • Belgium €7.90 • Canada CA$ 12 • Denmark 80 DK • Ethiopia 200 Birr • France €7.90 • Germany €7.90 • Ghana GH¢ 35 • Kenya KES 1000 • Morocco 45 DH • Netherlands €7.90 • Nigeria 2000 NGN • Norway NK 95 • Rwanda RWF 7,500 • Sierra Leone LE 67,000 • South Africa R75 (tax incl.) • Sweden SEK 100 • Switzerland 10.90 FS • Tanzania TZS 20,000 • Tunisia 15 DT • Uganda UGX 40,000 • UK £7.2 • United States US$ 15.99 • Zambia 80 ZMW • Zimbabwe US$ 6.20 • CFA Countries 3,900 F.CFA • Euro Zone €7.90

20

TOP

ADOBE STOCK

AFRICAN

0

It’s risks ahoy for African financial institutions in a global era of tighter money and tougher competition. After the effects of the commodity crunch taught some banks a lesson, the regulators have been hard at work – not always with beneficial consequences.

And if you are a mid-tier African bank, you will have three choices: scale-up, embrace digital services or die

BANKS

By NICHOLAS NORBROOK

Neither a borrower nor a hoarder be

Nigeria’s central bank has pushed through a law requiring loan-to-deposit ratios to be 60% by 20 September 2019 – a move it hopes will force banks to start lending rather than hoarding. Kenyan lawmakers attempted the same, this time using an interest-rate cap, which most analysts agree has not been successful, often driving borrowers into the hands of under-regulated online lenders (see page 52).

116 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

TOTAL ASSETS BREAKDOWN

North Africa West Africa Central Africa East Africa Southern Africa

$1.51trn

$1.49trn

$1.46trn

$1.74trn

$1.66trn

2014

2015

2016

2017

2018

TOP 5 FOR ASSET GROWTH %

+92 +62

US$bn

+56 +41

1.05

1.04

ECOBANK COOPERATIVE ZIMBABWE BANK OF OROMIA Zimbabwe Ethiopia

1.11 FIRST BANKING CORP. HOLDING Zimbabwe

1.85 BARCLAYS BANK OF GHANA Ghana

+34 2.49 EXPORT DEVELOP. BANK OF EGYPT Egypt

TOP 5 FOR ASSET DECLINE % BANCO DE POUPANÇA E CRÉDITO Angola

6.15

-45

US$bn BANCO CAIXA GERAL BANCO TOTTA DE MILLENNIUM ANGOLA ATLÂNTICO* Angola Angola

BANCO SOL Angola

BANCO DE FOMENTO ANGOLA Angola

1.68

5.49

1.17

4.38

-40

-37

-34

-32

Regulators have been active in Ghana, too, demanding in 2017 a capital increase from ¢120m ($22.2m) to ¢400m, with a deadline of end-2018. The multi-year banking crisis that ensued – with 420 institutions failing – has been much criticised, including by President Nana Akufo-Addo, who called the Bank of Ghana’s response “lax”.

Chinese investment has provided some respite. Likewise, the cutting of US interest rates – the first time it has happened since the financial crash of 2009 – could precipitate a new wave of investors seeking yields in frontier and emerging markets. That in turn could see a fresh influx of cash and offer banks some space to consolidate and grow.

But there are other rocks in the water, especially for those banks stuck in the middle. The mobile revolution has allowed a new swath of ‘branchless’ banks to enter the market. South Africa’s TymeBank is just one of several digital banks to rock the boat for the mid-tier competitors

*Ex Banco Privado Do Atlantico

From the commodity crashes to the rise of a new breed of technology-driven niche players, the traditional era of banking is finished. Our exclusive list of Africa’s Top 200 banks shows it: the profitability of Africa’s Top 200 banks in US dollars in 2018 took a sizeable hit – reaching the lowest level since 2014. Africa’s top 10 profitable banks represent nearly 50% of the total profits of our Top 200.

A special mention should go to Stanbic Uganda (#158), which made number 10 on that list – proof that size and profitability are not necessarily correlated.

Of course, some wounds are self-inflicted. Attijariwafa Bank (#7) is still trying to digest its purchase of the Egyptian subsidiary of Barclays Bank. Others have hitched a lift on an economic upswing. The top three Egyptian banks – Misr (#8), CIB (#18) and Alahli (#23) – have all climbed in our ranking compared to last year.

But the collapse in oil and other commodity prices that began in late 2014 and continued through 2015 has wreaked havoc with economic operators across the continent. The banks in big commodity exporters were among the first in line to suffer and non-performing loans (NPLs) bloomed.

Take First Bank of Nigeria (#22), which is well diversified across the economy. Its exposure to problematic companies proved a significant hiccup, pulling down its asset quality and preventing it from taking on other, more productive lending. On an earnings call, Urum Kalu Eke, director of FBN Holdings, which owns First Bank, explained how “the NPL ratio is down to 14.5% as of June 2019, from 25.9% at December 2018. […] It [offers] significant headroom for us to increase our exposure in the very lucrative oil and gas sector, where we’ve been shut out effectively over the past three years.”

Still at number one, South Africa’s Standard Bank (#1) managed to post profits of more than $2bn in 2018 but is constrained by the sinking sovereign rating, which is drying up the flows of capital towards South Africa.

South Africa’s problems are echoed elsewhere on the continent. As the US Federal Reserve slowly started raising rates in recent years, yield-hunting investors withdrew from Africa. The knock-on for banks has been limited, partly because governments are dependent on financing from domestic financial institutions. But while that works out OK for banks in the short term – see the stellar results for 2017 – the result is industry, services and agriculture all struggling to get loans, which drags the economy down.

TOTAL LOANS ($bn) North Africa West Africa Central Africa East Africa Southern Africa

500

TOP 10 MOST PROFITABLE Standard Bank Group South Africa $2bn

400 300 200 100 0 2014

2015

2016

2017

2018

AFRICA’S DEPOSITS ($bn)

500

300 200 100 2014

2015

2016

2017

$1.94bn

Commercial Bank of Ethiopia Ethiopia

$1.29bn

Standard Bank of South Africa South Africa

$1.11bn

Nedbank Group $934m South Africa

400

0

FirstRand Banking Group South Africa

2018

TOTAL NET INTEREST INCOME BREAKDOWN ($bn)

50

Attijariwafa Bank Morocco

$704m

Zenith Bank Nigeria

$635m

National Bank of Egypt Egypt

$564m

Banco de Fomento de Angola

$561m

ABSA Bank South Africa

$555m

Angola

40 30 20

SOURCE: THE AFRICA REPORT

10

30

0

2014

2015

2016

2017

2018

NUMBER OF BANKS 49

25

22.4

21.4

21.6

2014

2015

2016

19.8

25.2

25.3

2017

2018

20

8 56

TOTAL PROFITS ($bn)

31

56

15 2013

such as African Bank (#125), which are neither able to service blue-chip customers nor to battle at the bottom of the pyramid like they used to.

Meanwhile, telecoms and fintechs are snapping at banks’ heels, carving out strips from what used to be the hunting preserve of general service banks. In sub-Saharan Africa there are more than 450 million unique mobile phone owners according to industry body GSMA, and 350 million adults lack a bank account, says the World Bank.

Africa’s biggest mobile phone company, MTN, has been granted a mobile-money licence in one of Africa’s largest economies – Nigeria. This does not necessarily imply sudden death for Nigerian banks – immediately after listing in Lagos in May, MTN Nigeria took out a $653m loan from seven local banks. That suggests they will benefit, even indirectly, and optimists will argue that a greater circulation of money in the economy will float all boats.

METHODOLOGY WE COMPILED OUR RANKING of Africa’s Top 200 banks by sending out detailed questonnaires to more than 1,000 financial institutions spread across the continent. Their replies were used to create a systematic ranking of Africa’s top banks based on total asset size. Our list features only the top 200 banks. All data is communicated to us by the banks or their parent companies. These figures relate to the 2018 financial year. Where that information was unavailable we used 2017 figures, indicated in the rankings by italics.

Banks are removed from the list if they do not supply data during two consecutive years. The data was converted to US$ using the exchange rates applicable on 31 December 2018. Numbers in the ‘Rank 2018’ column refer to a bank’s position in The Africa Report’s ranking of September 2018.

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

117

‘Significantly more urgency is required with the implementation of structural reforms [in SA].’

MIKE BROWN CEO of Nedbank (#6)

Rank 2019

Rank 2018

Diff.

Bank

Country

Total assets

Net interest income

Loans

Deposits

1

1

0

Standard Bank Group

South Africa

147 249 579

7 292 065

77 583 846

94 977 952

2

3

+1

Firstrand Banking Group

South Africa

105 755 194

5 857 758

77 080 544

87 800 532

3

2

-1

Standard Bank of South Africa

South Africa

94 170 938

4 833 500

64 498 753

70 077 791

4

6

+2

National Bank of Egypt

Egypt

86 101 818

ND

24 028 889

56 607 390

5

5

0

Absa Bank

South Africa

74 746 177

3 237 541

50 897 896

41 928 942

6

7

+1

Nedbank Group

South Africa

72 270 028

3 538 138

50 974 395

5 717 013

7

8

+1

Attijariwafa Bank

Morocco

53 317 833

2 339 082

31 897 040

34 714 504

8

9

+1

Banque Misr

Egypt

49 313 264

339 156

12 326 957

37 349 872

9

10

+1

Banque Centrale Populaire

Morocco

41 467 422

1 779 635

25 536 523

29 626 917

10

12

+2

Investec Group

South Africa

32 925 996

573 709

18 120 053

23 656 583

11

13

+2

BMCE Bank of Africa

Morocco

32 519 709

1 383 691

19 028 275

20 125 103

12

11

-1

Rand Merchant Bank

South Africa

31 367 005

1 246 002

20 445 073

14 870 535

13

16

+3

Banque Extérieure d’Algerie*

Algeria

26 913 172

ND

ND

ND

14

14

0

First National Bank of South Africa

South Africa

25 912 097

ND

ND

ND

15

15

0

Banque Nationale d’Algerie*

Algeria

24 382 816

674 791

14 225 371

14 727 477

16

17

+1

Ecobank Transnational Inc.

Togo

22 582 196

1 825 171

9 168 669

15 935 999

17

19

+2

Commercial Bank of Ethiopia

Ethiopia

19 656 780

ND

3 499 637

15 704 568

18

20

+2

Commercial International Bank

Egypt

19 100 382

1 012 045

5 929 927

15 916 292

19

22

+3

Crédit Populaire d’Algerie*

Algeria

16 572 240

593 405

10 399 924

11 473 672

20

21

+1

Zenith Bank

Nigeria

16 318 645

809 928

4 995 324

10 111 408

21

18

-3

Wesbank

South Africa

15 814 417

ND

ND

ND

22

23

+1

First Bank of Nigeria

Nigeria

15 257 186

778 620

4 613 648

9 553 533

23

25

+2

Qatar National Bank Alahli

Egypt

14 132 512

718 450

7 711 549

11 565 980

24

24

0

Zenith Bank Nigeria

Nigeria

13 577 919

667 628

4 756 821

7 729 721

25

29

+4

Access Bank Group

Nigeria

13 574 390

475 604

5 462 481

7 027 849

26

27

+1

African Export-Import Bank

Egypt

13 419 370

489 833

11 134 424

2 365 385

27

30

+3

United Bank for Africa Group

Nigeria

13 343 082

844 517

4 699 881

9 176 589

28

26

-2

Arab African International Bank

Egypt

12 346 830

75 860

4 371 471

8 837 949

29

28

-1

BADR*

Algeria

11 791 258

438 908

7 493 819

9 792 702

30

32

+2

Crédit Agricole du Maroc

Morocco

11 218 289

415 175

8 104 045

7 847 113

31

33

+2

MCB Group

Mauritius

10 953 584

480 561

5 650 098

8 440 334

32

34

+2

Access Bank Nigeria

Nigeria

10 872 634

30 173

4 608 028

5 640 945

33

35

+2

Soc. Gén. Marocaine de Banques

Morocco

10 722 921

494 588

8 559 449

6 702 141

34

38

+4

MCB

Mauritius

9 915 696

426 923

5 345 931

8 094 832

35

41

+6

United Bank for Africa Nigeria

Nigeria

9 840 176

373 467

3 325 815

6 642 056

36

37

+1

Guaranty Trust Bank

Nigeria

9 007 319

609 469

505 912

6 230 495

37

36

-1

Bank of Africa Group

Senegal

8 776 697

549 474

4 718 605

6 160 974

38

42

+4

Banque de Développement Local*

Algeria

7 777 671

347 946

5 668 521

6 171 868

39

40

+1

Banco Angolano de Investimentos

Angola

7 296 725

572 534

1 788 825

5 820 222

40

43

+3

BMCI

Morocco

7 247 443

316 552

5 489 144

4 817 612

2018 results in thousands of US dollars; *in italics 2017 results; NA: not available

118 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

WALDO SWIEGERS/BLOOMBERG VIA GETTY IMAGES

1-40

$58m is KCB Group (#42)’s valuation of National Bank, which it is seeking to take over despite its 49% NPL ratio

41-80 Rank 2019

Rank 2018

Diff.

41

48

+7

Dev. Bank of Southern Africa*

South Africa

7 204 757

349 603

ND

ND

42

46

+4

KCB Group

Kenya

6 971 691

700 808

4 449 392

4 795 672

43

44

+1

Capitec Bank

South Africa

6 952 613

1 008 589

3 081 752

5 292 191

44

49

+5

CIH Bank

Morocco

6 791 159

235 139

4 951 779

3 874 218

45

58

+13

SBM Bank Mauritius

Mauritius

6 417 706

277 219

2 894 767

4 802 050

46

47

+1

Atlantic Business International

Côte d’Ivoire

6 264 663

289 931

3 271 466

3 386 186

47

31

-16

Banco de Poupança e Crédito

Angola

6 149 156

314 410

2 203 729

3 899 959

48

56

+8

Kenya Commercial Bank

Kenya

6 068 015

613 614

4 072 167

4 639 862

Bank

Country

Total assets

Net interest income

Loans

Deposits

49

51

+2

Crédit du Maroc

Morocco

5 851 596

240 802

4 288 319

5 353 890

50

52

+2

Al Barid Bank

Morocco

5 805 196

88 606

451 530

5 292 045

51

62

+11

HSBC Bank Egypt

Egypt

5 632 330

378 073

1 868 252

4 475 315

52

59

+7

Equity Bank Group

Kenya

5 596 235

404 281

2 900 935

4 126 123

53

57

+4

Trade & Development Bank

Burundi

5 557 573

173 529

ND

ND

Banco Economico*

Angola

5 520 598

ND

1 072 910

3 898 872

Banco de Fomento Angola

Angola

5 486 004

902 144

952 613

3 967 453

54

53

-1

55

39

-16

56

55

-1

BGFIBank Holding Corp.

Gabon

5 458 380

356 700

3 694 020

3 775 800

57

66

+9

Faisal Islamic Bank of Egypt

Egypt

5 376 893

ND

ND

ND

58

60

+2

Ecobank Nigeria

Nigeria

5 361 714

382 181

2 538 736

3 515 894

59

69

+10

Bank of Alexandria

Egypt

5 306 498

310 858

2 132 978

4 394 461

60

54

-6

61

98

+37

62

64

+2

63

67

+4

64

75

+11

65

65

0

66

74

+8

Banque Int. Arabe de Tunisie

Tunisia

5 259 686

277 256

3 547 226

3 824 971

Bank of Khartoum*

Sudan

5 068 109

ND

ND

4 155 139

Arab International Bank*

Egypt

4 924 365

144 389

1 078 470

3 112 873

Arab Bank for Econ. Dev. in Africa

Sudan

4 895 046

ND

1 755 281

Fidelity Bank

Nigeria

4 712 479

190 668

2 325 931

2 683 592

Société Arabe Int. de Banque*

Egypt

4 686 640

105 743

1 569 338

3 742 805

Stanbic IBTC Chartered Bank

Nigeria

4 558 431

214 293

1 185 634

2 213 076

Africa Finance Corp.

Nigeria

4 487 478

150 985

133 769

2 901 941

West African Development Bank

Togo

4 468 652

94 496

3 134 645

ND

Banco Millennium Atlântico

Angola

4 375 246

216 479

1 353 252

3 358 217

Equity Bank Kenya

Kenya

4 279 846

312 378

2 181 997

3 334 237

67

-

-

68

61

-7

69

50

-19

70

73

+3

71

45

-26

Banco BIC

Angola

4 210 812

615 213

1 275 942

2 964 642

72

82

+10

National Bank of Kuwait – Egypt

Egypt

4 099 613

154 579

2 155 562

2 965 205

73

76

+3

Co-operative Bank of Kenya

Kenya

4 037 426

426 816

2 395 205

2 992 029

74

72

-2

Union Bank of Nigeria

Nigeria

4 010 971

151 659

1 297 286

2 349 805

75

83

+8

Land Bank*

South Africa

3 996 572

103 244

3 506 475

ND

76

87

+11

Bank Audi Egypt

Egypt

3 969 078

125 633

740 033

1 782 506

77

68

-9

Banque de l’Habitat de Tunisie

Tunisia

3 957 609

151 417

3 029 666

2 176 629

78

85

+7

First City Monument Bank

Nigeria

3 921 757

198 851

1 734 516

2 251 588

79

113

+34

Faisal Islamic Bank Sudan*

Sudan

3 895 637

218 957

ND

ND

80

70

-10

Banque Nationale Agricole

Tunisia

3 833 480

183 979

3 076 236

2 591 467

2018 results in thousands of US dollars; *in italics 2017 results; NA: not available

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

119

Sterling Bank (#93) reported 19.1% growth in net interest income to N30.1bn ($83.5m) in the first half of 2019 compared to H1 2018.

81-120 Rank 2019

Rank 2018

Diff.

Bank

Country

Total assets

Net interest income

Loans

Deposits

81

84

+3

Oragroup SA

Togo

3 778 994

220 590

2 184 335

2 544 411

82

78

-4

Diamond Trust Bank Kenya

Kenya

3 686 541

255 424

1 884 406

2 760 714

83

77

-6

Société Tunisienne de Banque

Tunisia

3 495 109

157 278

2 370 003

2 112 039

84

97

+13

Al Baraka Bank Egypt

Egypt

3 487 435

105 145

878 321

3 041 985

85

79

-6

BSIC*

Libya

3 480 412

143 373

1 249 004

2 058 823

86

88

+2

Egyptian Gulf Bank

Egypt

3 437 608

78 080

ND

ND

87

71

-16

HSBC Mauritius

Mauritius

3 426 421

55 020

1 761 050

2 240 091

88

94

+6

AfrAsia Bank

Mauritius

3 413 352

82 290

795 685

3 157 778

89

92

+3

90

104

+14

91

91

0

92

89

-3

93

93

0

Société Générale Côte d’Ivoire

Côte d’Ivoire

3 310 494

222 668

2 210 851

2 678 902

Barclays Bank of Kenya

Kenya

3 170 435

308 362

1 730 972

2 024 300

Société Générale Algérie

Algeria

3 150 388

184 085

2 155 653

2 452 034

Barclays Bank Mauritius

Mauritius

3 087 939

131 005

2 257 454

1 482 847

Sterling Bank

Nigeria

3 022 004

209 443

1 701 587

2 084 066

94

109

+15

Crédit Agricole Egypt

Egypt

2 987 521

167 012

1 139 393

2 450 564

95

80

-15

Amen Bank

Tunisia

2 928 031

124 590

1 969 851

1 832 969

96

103

+7

Ahli United Bank Egypt

Egypt

2 872 015

ND

1 281 995

ND

97

81

-16

Attijari Bank

Tunisia

2 846 821

144 994

1 807 441

2 246 196

98

115

+17

Stanbic Holdings

Kenya

2 835 966

118 385

1 430 856

1 869 866

99

96

-3

Housing and Development Bank

Egypt

2 830 736

179 405

759 124

1 888 375

100

128

+28

African Banking Corp. Holdings

Botswana

2 804 726

287 490

1 154 113

1 631 797

101

100

-1

Standard Chartered Bank Kenya

Kenya

2 785 543

279 112

1 158 039

2 189 016

102

126

+24

Abu Dhabi Islamic Bank – Egypt

Egypt

2 755 883

139 226

ND

2 225 002

103

90

-13

First National Bank of Namibia

Namibia

2 728 384

110 494

1 975 259

2 183 944

104

118

+14

Suez Canal Bank

Egypt

2 644 548

53 722

752 894

2 155 115

105

108

+3

Banque Atlantique – Côte d’Ivoire

Côte d’Ivoire

2 613 619

122 649

1 347 106

1 566 947

106

105

-1

CRDB Bank

Tanzania

2 595 216

190 423

1 344 495

2 015 485

107

99

-8

Bank Windhoek

Namibia

2 585 160

165 427

2 060 538

1 897 517

108

101

-7

Ecobank Côte d’Ivoire

Côte d’Ivoire

2 554 113

147 590

1 313 592

1 511 930

109

138

+29

Export Development Bank of Egypt

Egypt

110

106

-4

111

122

+11

112

112

0

113

117

+4

114

132

+18

115

123

+8

2 489 300

64 740

1 113 678

1 936 054

Banco Comercial e de Investimentos Mozambique

2 479 773

228 128

959 365

1 868 555

CBZ Bank

Zimbabwe

2 449 933

80 394

486 996

2 079 155

National Microfinance Bank

Tanzania

2 442 823

211 570

1 398 271

1 860 871

Banco Int. de Moçambique

Mozambique

2 434 042

212 203

809 665

1 787 137

I&M Bank

Kenya

2 426 722

152 546

1 440 805

1 867 421

Commercial Bank of Africa

Kenya

2 392 243

206 918

1 185 873

1 918 111

Standard Chartered Bank Mauritius

Mauritius

2 344 832

81 557

942 156

1 440 203

Banque Al Baraka d’Algérie

Algeria

2 300 000

105 400

ND

ND

116

110

-6

117

137

+20

118

116

-2

First National Bank of Botswana

Botswana

2 272 726

204 846

1 414 620

1 605 491

119

120

+1

Gulf Bank Algeria*

Algeria

2 214 140

116 945

1 325 974

1 723 537

120

125

+5

GCB Bank

Ghana

2 207 867

199 165

576 435

1 708 724

2018 results in thousands of US dollars; *in italics 2017 results; NA: not available

120 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

‘The changes that we have seen in the banking industry will lead to sustainable growth.’

TERENCE DARKO Chairman of Ecobank Ghana (#123)

Rank 2019

Rank 2018

Diff.

Bank

Country

Total assets

Net interest income

Loans

Deposits

121

111

-10

Standard Bank Namibia

Namibia

2 193 079

114 805

1 539 482

1 743 999

122

119

-3

BNP Paribas El Djazair

Algeria

2 193 007

144 759

1 366 361

1 718 746

123

129

+6

Ecobank Ghana

Ghana

2 152 897

104 000

854 756

1 609 009

124

107

-17

Arab Tunisian Bank

Tunisia

2 129 382

81 860

ND

1 546 660

125

102

-23

African Bank

South Africa

2 123 146

ND

ND

ND

126

124

-2

Banque de Tunisie

Tunisia

2 116 614

111 709

1 504 720

1 202 619

127

131

+4

NIC Bank

Kenya

2 034 056

124 451

1 140 485

1 410 330

128

121

-7

Union Internationale de Banques

Tunisia

2 029 123

120 503

ND

1 557 807

129

127

-2

130

145

+15

131

130

-1

132

134

+2

133

152

+19

134

139

+5

135

165

+30

Coris Bank International

Burkina Faso

2 004 906

98 667

1 109 664

1 218 539

Citibank Nigeria

Nigeria

1 995 800

52 530

296 621

1 053 401

BGFIBank Gabon

Gabon

1 929 887

ND

1 251 275

1 590 689

Development Bank of Ethiopia*

Ethiopia

1 926 235

ND

1 024 724

18 557

Awash International Bank

Ethiopia

1 921 119

146 046

1 079 265

1 510 370

Société Ivoirienne de Banque

Côte d’Ivoire

1 861 431

114 737

1 232 498

1 357 082

Barclays Bank of Ghana

Ghana

1 852 340

134 010

660 009

972 131

136

140

+4

CBAO Groupe Attijariwafa Bank*

Senegal

1 815 144

131 868

1 214 167

1 375 185

137

141

+4

Afriland First Bank*

Cameroon

1 802 114

94 439

1 109 809

1 316 688

138

146

+8

Union National Bank Egypt

Egypt

1 806 076

53 658

710 012

1 533 104

139

144

+5

Investec Bank Mauritius

Mauritius

1 785 547

48 626

1 034 269

1 036 836

140

-

-

141

158

+17

142

135

-7

143

95

-48

144

-

-

Attijariwafa Bank Egypt

Egypt

1 771 684

127 680

827 106

1 369 734

Stanbic Bank Zimbabwe

Zimbabwe

1 769 228

67 736

387 344

1 508 054

NSIA Banque Côte d’Ivoire

Côte d’Ivoire

1 763 071

109 049

1 215 872

1 256 421

Banco Sol

Angola

1 713 881

213 887

ND

1 307 399

Rawbank

DRC

1 679 534

155 294

1 159 416

665 230

145

150

+5

Société Générale Sénégal

Senegal

1 618 774

127 893

1 052 105

1 341 975

146

156

+10

Standard Bank Mozambique

Mozambique

1 613 002

149 271

456 694

1 193 384

147

167

+20

Standard Bank Mauritius

Mauritius

1 587 170

47 479

228 032

1 387 631

148

169

+21

Dashen Bank

Ethiopia

1 578 986

62 954

801 480

1 250 901

149

164

+15

Ecobank Burkina Faso

Burkina Faso

1 558 669

73 776

696 780

1 220 641

150

151

+1

Société Générale Cameroun

Cameroon

1 556 079

119 799

1 123 360

1 218 350

151

153

+2

Barclays Bank of Botswana

Botswana

1 555 907

127 241

1 081 571

1 083 394

152

154

+2

Standard Chartered Bank Botswana

Botswana

1 508 439

46 879

684 076

1 118 516

153

133

-20

Banco de Desenvolv. de Angola

Angola

1 506 084

267 720

309 253

15 583

154

142

-12

Bank of Africa – Benin

Benin

1 498 166

68 533

737 577

1 007 684

155

155

0

Citibank NA Algeria*

Algeria

1 478 959

62 693

597 056

1 166 441

156

-

-

157

168

+11

BNP Paribas South Africa

South Africa

1 473 206

3 974

129 515

908 096

Central Africa Building Society

Zimbabwe

1 469 030

107 530

779 650

1 167 230

158

157

-1

159

173

+14

Stanbic Bank Uganda

Uganda

1 456 126

100 148

677 383

1 050 920

Fidelity Bank Ghana

Ghana

1 449 459

145 004

301 260

820 444

160

136

-24

Standard Bank de Angola

Angola

1 427 254

117 230

172 905

1 084 536

2018 results in thousands of US dollars; *in italics 2017 results; NA: not available

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

121

ALL RIGHTS RESERVED

121-160

Wema Bank (#165) recorded profits before tax of N2.6bn ($7.1m) in the first half of 2019, up from N1.8bn in the first half of 2018.

161-200 Rank 2019

Rank 2018

Diff.

Bank

Country

Total assets

Net interest income

Loans

Deposits

161

160

-1

Bank of Africa – Burkina Faso

Burkina Faso

1 375 999

68 979

892 811

990 145

162

170

+8

Natixis Algérie*

Algeria

1 378 028

59 444

661 137

ND

163

161

-2

Nedbank Namibia

Namibia

1 349 098

56 000

844 826

608 097

164

187

+23

BGFIBank Congo

Rep. of Congo

1 341 540

ND

ND

ND

165

184

+19

Wema Bank

Nigeria

1 339 324

102 412

691 000

1 011 607

166

171

+5

Stanbic Bank Botswana

Botswana

1 323 107

47 982

1 051 494

1 092 274

167

-

-

168

159

-9

169

174

+5

170

148

-22

171

179

+8

172

177

+5

173

185

+12

174

190

+16

175

172

-3

Banque Malienne de Solidarité*

Mali

1 317 424

62 727

661 119

749 855

BICEC

Cameroon

1 306 489

90 283

775 301

1 051 773

Misr Iran Development Bank

Egypt

1 292 675

33 145

386 839

1 115 186

UBCI

Tunisia

1 285 146

75 884

915 038

872 359

Banque de Dévelop. du Mali*

Mali

1 282 841

63 382

646 226

848 783

Stanbic Bank Ghana

Ghana

1 277 860

96 035

532 300

881 899

Stanbic Bank Zambia

Zambia

1 235 115

125 742

ND

940 088

Standard Chartered Bank Ghana

Ghana

1 227 710

100 666

268 153

885 969

Ecobank Sénégal

Senegal

1 220 488

73 860

551 493

823 246

176

-

-

177

175

-2

178

143

-35

Banco Caixa Geral Totta de Angola

Angola

1 166 544

ND

257 136

901 135

179

196

+17

Zenith Bank Ghana

Ghana

1 147 595

87 199

150 971

701 749

Grindrod Bank

South Africa

1 138 147

9 797

457 343

1 043 976

Bank One

Mauritius

1 134 159

28 216

585 963

947 792

National Bank of Kenya

Kenya

1 123 800

77 934

466 321

58 762

CalBank

Ghana

1 116 050

106 936

498 983

634 024

First Banking Corp. Holding

Zimbabwe

1 113 977

65 199

405 508

627 900

180

162

-18

181

-

-

182

189

+7

183

200

+17

184

-

-

Bank of Baroda Kenya

Kenya

1 200 621

62 828

405 731

995 113

BICICI

Côte d’Ivoire

1 179 348

84 889

860 428

1 026 499

185

-

-

Bank of Abyssinia

Ethiopia

1 111 729

ND

ND

ND

186

182

-4

Société Générale Burkina Faso*

Burkina Faso

1 091 632

47 534

731 669

728 754

187

180

-7

Banque Zitouna

Tunisia

1 091 680

46 378

822 846

939 864

188

192

+4

SCB Cameroun

Cameroon

1 078 081

84 696

568 809

923 881

189

198

+9

Ecobank Mali

Mali

1 054 437

63 444

332 954

613 689

190

-

-

Ecobank Zimbabwe

Zimbabwe

1 050 300

80 400

206 200

913 700

191

-

-

192

183

-9

Cooperative Bank of Oromia

Ethiopia

1 038 908

42 743

511 373

882 631

Mercantile Bank

South Africa

1 027 925

63 872

683 931

721 201

193

-

-

Al-Nile Bank for Comm. and Dev.*

Sudan

1 004 173

55 135

ND

ND

194

176

-18

195

-

-

Bank of Africa – Côte d’Ivoire

Côte d’Ivoire

1 003 855

57 129

524 460

660 085

Banque Nat. d’Investissement*

Côte d’Ivoire

997 961

57 456

15 603

ND

196

-

197

-

-

Bank of Kigali

Rwanda

982 690

103 757

636 277

595 794

-

Prime Bank

Kenya

977 327

36 719

358 939

693 692

198 199

-

-

United Bank

Ethiopia

974 355

60 356

516 877

686 904

-

-

Letshego Group

Botswana

973 878

188 645

794 986

45 486

200

178

-22

FMB Capital Holdings

Malawi

971 019

138 399

243 300

359 148

2018 results in thousands of US dollars; *in italics 2017 results; NA: not available

122 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

Being named best bank in Egypt

year after year was only the beginning

WORLD’S BEST BANK IN THE EMERGING MARKETS

SOUTH AFRICA

Pain at home and joy abroad Economic prospects are muted in South Africa, but Standard Bank's investments elsewhere in Africa offer bright spots as it doubles down on digitalisation and cost cutting

from 17.1% a year earlier. Hollingworth highlights that personal banking is especially strong: “This is a bank with a rising trajectory of profitability.”

Growth in costs is outstripping growth in income, however, and there is a need for greater cost control, he argues, pointing out that tighter cost control would mean more scope to invest in growth markets. “They need to keep an eye on their efficiency goals,” Hollingworth says.

Standard Bank continues to shed its non-African operations in order to focus more on the continent. In August, it sold all of its remaining stake in Standard Bank Argentina to the Industrial and Commercial Bank of China (ICBC).

Announcing half-year results and a 5% increase in profit, chief executive Sim Tshabalala told reporters that he has his eye on West Africa: “We’re also saying that we’re quite comfortable to contemplate appropriately priced acquisitions to the extent that they might fit with our risk

By DAVID WHITEHOUSE

A focus on the continent

Hollingworth argues that the bank has a robust outlook.

Operating in 20 sub-Saharan countries outside of South Africa, it is geographically well diversified, with strong liquidity ratios, he says. It has shown a “remarkable” ability to retain profitability even during economic stress.

The bank’s return on equity increased to 18% in 2018

124 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

MIKE HUTCHINGS/REUTERS

As the largest bank by assets in Africa, Standard Bank (#1) has advantages of diversification and has demonstrated that it can withstand hostile operating environments.

With Moody’s the only ratings agency still giving the South African government an investment-grade rating, the bank has yet to prove that it can manage rising costs in its crucial home market. Analysts and investors are worried about slow growth, corruption and high debt levels in South Africa’s economy.

Preventing costs from rising faster than income is “the key issue for all banks in South Africa,” argues Bradley Preston, head of listed investments at Mergence Investment Managers in Cape Town. “It’s a tough ask.”

Standard Bank got rid of about 2,100 employees between June 2018 and June 2019 in order to help reduce its costs.

Preston points out that a potential downgrading by Moody’s would automatically affect South Africa’s membership of some global bond indices. This, he says, would have a short- to medium-term impact on the flow of money into South African banks, which would in turn raise their cost of financing. Though he sees the long-term effect of a downgrade as already priced into the market, Preston expects that non-performing loans (NPLs) and credit-loss ratios will increase for all South African banks.

Standard Bank is well placed to withstand even a worstcase scenario. Paul Hollingworth, managing director at Creative Portfolios in London, says that the bank’s rapid growth is bound to lead to a rise in NPLs. Yet Standard Bank has “good underwriting discipline” and has proven that it can evaluate risk, he says.

R80bn

CORPORATE AND INVESTMENT BANKING TOTAL INCOME BY PRODUCT (%)

Compound Annual Growth Rate: South Africa 6% - Africa regions 11% - International 20%

16

22

R64bn

17

22

R48bn 17

R32bn

2017

R16bn

2018 21

17

21

23 24

0 2013

2014

2015

2016

2017

2018

R38.7bn

R43bn

R46.3bn

R50.6bn

R52bn

R52.3bn

R9bn

R11.2bn

R13bn

R15.3bn

R14.2bn

R15.4bn

R852m

R1.1bn

R1.4bn

R1.7bn

R1.6bn

R2.2bn

appetite.” The bank obtained an operating licence in Côte d’Ivoire in 2016 and is launching operations in Senegal, the second-largest economy in the Union Economique et Monétaire Ouest Africaine regional grouping. In the first half of 2019, Standard Bank’s earnings rose in its Africa operations and stayed relatively flat in South Africa.

According to Tshabalala, prospects for sub-Saharan Africa overall are good, with economic growth expected The bank has retained profitability even during economic stress

Global markets South Africa Global markets Africa regions Investment banking Transactional products and services South Africa Transactional products and services Africa regions

to accelerate from 2.9% in 2018 to 3.5% in 2019. More than a third of the countries in the region are expected to grow at more than 5% per annum, he says.

A key part of Standard Bank’s strategy lies in expanding its digital presence to tap into that growth. The bank has the scale to multiply small bets on digital banking in new markets and launched digital-only banks in Botswana, Zambia and Zimbabwe in June, to be followed

by Nigeria in September. It rolled out digital offerings in Uganda, Tanzania, Ghana and Kenya in the first quarter of this year, and in Côte d’Ivoire in 2018. In its 2019 first-half results, Standard Bank branches will shut in reported that in-person transacSouth Africa as part of the new plans released tions dropped by 13% year on year

by Standard Bank in and that nearly all transactions June, an increase from are now through digital services. the previously Digitalisation is a double-edged announced 91 sword because it also intensifies competition. Banking branches are among the first casualties. In June, Standard Bank increased its branch closure plan in South Africa to 104 branches, from 91.

Another 1,200 Standard Bank employees could lose their jobs in the closures.

104

New digital players

According to a report from professional services firm PwC, South African retail banking is set to experience a “significant uptick” in competition due to digitalisation.

PwC says that new digital entrants in South Africa are unconstrained by legacy operating systems and will be able to establish an “almost unassailable advantage” over the universal banks as they are able to launch new products in as little as three to six months. Established banks often take between 12 and 24 months to launch new products, PwC explains. One of the new digital players in South Africa, TymeBank, is targeting one million customers by the end of 2019.

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

125

SOURCE: STANDARD BANK

PERSONAL AND BUSINESS BANKING TOTAL INCOME

STANDARD BANK’S 2018 PERFORMANCE IN AFRICA

Strong performance* Moderate performance* Focus to improve* SOURCE: STANDARD BANK

Preston at Mergence says that Standard Bank has passed its peak in terms of information technology (IT) spending and that IT amortisation costs will decline. But it is too early to judge the success of the bank’s digitisation strategy and the heavy costs involved, he says.

The digital strategy also aims at deepening trade and financing links with China. In June Standard Bank – Industrial and Commercial Bank China (ICBC) is a minority shareholder – launched its Africa China Agent Proposition, which connects African importers and Chinese exporters. The aim is to help African importers in sourcing goods from China, while easing cashflow pressures on African businesses. Chinese suppliers can get a letter of credit for Standard Bank’s Chinese partner ICBC, which will enable them to supply goods before payment. Standard Bank’s head of Africa-China integration, Manessah Alagbaoso, says current arrangements where importers in Africa have to pay suppliers upfront before goods are shipped is unsustainable for African businesses.

Scale allows Standard Bank to hedge its bets. The bank is one of the largest oil and gas lenders in sub-Saharan Africa and has financed companies such as Petrobas in Nigeria, Kosmos Energy in Ghana and Tullow Oil for its African expansion. That leaves it well placed to benefit from a string of exploration projects over the last decade that has seen the number of African countries with proven oil and gas reserves rise to 28.

Fintech investments

Standard Bank is also investing in smaller fintech companies as a means to keep tabs on innovations in the financial sector. In August, it purchased an undisclosed stake in startup Nomanini, which links up informal retailers, their customers and banks. In October 2018, Standard Bank also invested in Founders Factory Africa, which is focused on incubating fintech startups across the continent. They announced their first five investments in June of this year.

The home market remains key to Standard Bank’s financial performance. Preston agrees that South African HEADLINE EARNINGS AND RETURN ON EQUITY CORPORATE ANNUAL GROWTH RATE 2013-2018: 10% Return on equity (%) 20

R24bn

16

R18bn

12

R12bn

8

R6bn

4

0

2013

2014

2015

2016

2017

2018

0

R17bn R17.1bn R22.2bn R23bn R26.3bn R27.9bn 14.2

13.0

15.6

15.3

17.1

18.0

126 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

SOURCE: STANDARD BANK

Headline earnings R30bn

Single representation/ development phase

*Determined based on inputs including growth, resilience and returns

banks have shown they can continue to generate positive, if unexciting, earnings in tough economic conditions. But to do better than that, the banks need a better environment. “To really grow quickly, they will need to see an increase in business confidence, economic growth and credit extension.”

Currently there is little sign of such transformational change. South Africa’s President Cyril Ramaphosa has to walk a tightrope between popular demand for land expropriation without compensation on one hand and the fears of international investors on the other. A report on land restitution by an inter-ministerial committee led by deputy president David Mabuza was submitted in June.

Standard Bank chief executive Tshabalala is right to highlight the strengthening of property rights (see box) as a prerequisite to South Africa’s sustained growth, says Indigo Ellis, Africa analyst at Verisk Maplecroft in London.

“But we do not expect South Africa to strengthen property rights over the next couple of years, rather to confirm their slow degradation, particularly in relation to land reform.”

State electricity utility Eskom presents special dangers too. Ramaphosa plans to unbundle Eskom into three entities – generation, transmission and distribution.

This is the “real elephant in the room” but Ramaphosa’s “hands are tied”, Ellis says. She expects very little private investment to be forthcoming for the utility.

Christopher Marks, head of emerging markets EMEA at Mitsubishi UFJ Financial Group, argues that South Africa is not standing on a cliff edge. He points out that Moody’s still has a stable outlook on South Africa – and there is still an intermediate step available if the agency was to lower that. “Moody’s have been very patient with Ramaphosa and are doing their best to give him

F. MAVUNDA/GALLO VIA GETTY

the benefit of the doubt,” he says. “The executioner is not yet coming.”

Regardless of the ratings outcome, Hollingworth says that South Africa has been heading in the right direction since former president Jacob Zuma stepped down in February 2018. The banks “weathered the Zuma storm and if they can do that, they will do even better under Ramaphosa.”

But if Moody’s downgrades South Africa tomorrow, there will be an investor “exodus”, Hollingworth says.

Loss of the investment-grade rating “wouldn’t be the biggest surprise in the world,” however. The bank seems well prepared and markets have had plenty of time to

digest the prospect, he says, though he does not believe the risk is fully priced in by markets. The investment grade rating is “not coming back tomorrow if they lose it. It takes time.”

The darkest cloud could even turn out to have a silver lining. A Moody’s cut might benefit Standard Bank and the South African economy in the long term, Hollingworth argues.

A cut would “put pressure on President Cyril Ramaphosa to deliver. It might encourage the government to be even more pro-active and committed to economic reform.”

In that case, the hit for Standard Bank in terms of financing costs could ultimately turn out to be a price worth paying.

SIM TSHABALALA Chief executive, Standard Bank

‘SUSTAINED GROWTH WILL REQUIRE REFORMS’ TAR: How do you see the economic outlook for South Africa? Will South Africa hold on to its last investment grade credit rating with Moody’s?

The South African economy will remain sluggish for the rest of the year, with the International Monetary Fund forecasting 1.5% growth and the Reserve Bank expecting only 1.2%. Standard Bank is optimistic for a moderate recovery of the South African economy over the medium term. However, a return to sustained growth at a pace that can reduce unemployment and inequality will require more comprehensive structural reforms, including reforms to stabilise and strengthen property rights.

To set South Africa firmly on the path to prosperity, our country also requires new large-scale investments in infrastructure by both the public and private sectors. Major reforms of our primary, secondary, tertiary and vocational education systems, of the justice and health systems, and of many other local, provincial and national departments

and agencies are needed. We will not be able to generate the resources required for these larger and longerterm projects unless we implement the urgent reforms listed above.

How is your blockchain project in foreign-exchange payments progressing? When will your blockchain become interoperable with that of Industrial and Commercial Bank of China (ICBC)?

The cloud-based blockchain solution will go live in the second half of 2019 and will initially support both Standard Bank and Stanbic Bank partner banks, customers and intermediaries directly involved in trades, as well as the interbank network Swift. [...] We are hopeful that when the blockchain system finally goes live, it would foster straight-through

1.5%

The IMF is forecasting sluggish growth in South Africa’s economy, while the Reserve Bank is expecting only 1.2%

processing of international transactions, speed up foreign-exchange payments and settlements while also bringing a new level of transparency in trades. Working together with ICBC means that our private permission blockchain foreign-exchange payments and settlement solution provides clients potential access to similar ecosystems around the world.

How successful has the bank been in reducing costs?

We are very serious about cost discipline. As a result, our South African operations were able to accelerate cost-cutting initiatives in the second half of 2018. However, this was not enough to offset other pressures, such as lower income from interest rates charged on loans.

That resulted in expenses growth exceeding revenue growth in 2018.

Do you think that non-performing loan (NPL) levels in South Africa are likely to increase in the coming year?

Because risks have been heightened we have had to be stricter on our risk acceptance criteria and have been tighter in certain market segments. So while we do think that NPLs will rise, we are sure they will remain well within risk appetite.

Standard Bank is confident lending will pick up with the improved economic outlook for South Africa.

Interview by DAVID WHITEHOUSE

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

127

LOGO OLUWAMUYIWA ADEYEMI FOR TAR

INTERVIEW

JIM OVIA

‘Banks will surf the wave’ Zenith Bank’s co-founder and chairman talks to The Africa Report about risks and rewards in the Nigerian banking sector Interview by NICHOLAS NORBROOK in Lagos Jim Ovia’s office at Zenith Bank (#20)’s headquarters, next to the Civic Centre in Lagos, dominates the lagoon that ultimately leads out to the Atlantic Ocean. As the photographer puts a good-natured Ovia through his postures, the sun starts to shift the stubborn clouds that have left the roads in their usual sodden state. “The improvement [at Zenith Bank] no doubt mirrors the recovery of the Nigerian economy,” says Jim Ovia.

The weather is certainly improving for Nigeria’s banks.

There are signs of changing fortunes, including a recovery in the oil price after the late 2015 collapse and the ability for the strongest banks to get out from under a pile of bad energy-related loans. Zenith – one of Nigeria’s largest banks – has done just that. After ratings agency Moody’s downgraded Zenith in late 2017, one year later

128 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

rival Fitch revised the bank’s rating upwards, in large part due to Zenith’s solid blue-chip corporate loan business.

The bank’s half-year audited results for 2019 show gross earnings up 3% to N331.6bn ($916.7m), profits before tax up 4% to N111.7bn, and a big jump in fees earned from mobile banking, which the bank puts down to “significant progress in our retail banking initiative”.

But Moody’s also spotted another strength at Zenith: its people. “Decision-making is well spread across a broad number of executives to minimise reliance on individuals,” reported Fitch. That team-building strategy is paying off, giving the founder of Nigeria’s second-most profitable bank in 2018 more reasons to be cheerful.

Talent spotter

Several former staff members are now in influential positions. A former Ovia protegé, Uchechukwu Sampson Ogah, was appointed in August as minister for mines and steel development. Central Bank of Nigeria (CBN) governor Godwin Emefiele was at Zenith for many years in executive roles. “I have been proven right after his tenure was recently renewed, a feat that has not been achieved since the return of Nigeria to democratic rule in 1999,” Ovia tells The Africa Report.

REACHING THE ZENITH 4 November 1951 Born in Agbor, Delta State, Nigeria 1979 Earned a master’s in business administration from the University of Louisiana, US 1990 Co-founded Nigeria’s Zenith Bank 2010 Stepped down as CEO of Zenith Bank due to new CBN regulations 2014 Appointed chairman of Zenith Bank's board of directors

Not everyone is so enthused with the central bank’s current decision-making though. Malte Liewerscheidt of consulting firm Teneo told reporters: “The CBN’s obsession with the exchange rate has led the Apex bank to sell more and more open-market operations securities that offer a high-yield, risk-free alternative for banks, effectively preventing them from handing out more loans to the real economy.”

With 30% of its loan book concentrated in oil and gas, is Zenith still too exposed to the energy sector? “Not necessarily, because we have a robust risk-management strategy”, says Ovia. “The outlook for global oil demand is positive and, barring any significant disruption to domestic crude production, there is not much to worry about.”

Global investors are less convinced, with the share price falling 33% in the last six months. Another systemic issue for African banks in general, and Zenith in particular, is their high amounts of ‘idle’ capital – large levels of liquidity. Some Nigerian bankers claim this is down to a lack of properly structured opportunities; others attribute it to the high returns available

at low risk by lending to the government. But for Ovia, “It’s never a problem to have an adequate capital ratio – far better than the reverse. Opportunities do come, and we shall continue to advance credit to various sectors of the economy, especially the non-oil sector.”

The Zenith supremacy dates back to a $4m bet that Ovia made with some co-investors in the 1990s under dictator Ibrahim Babangida. “The licensing was done in the military era!” says Ovia, reflecting on the ad hoc nature of the times. “But I knew there was an opportunity, so I used it to jump-start a more structured banking business and pushed to computerise it.”

Zenith was one of the first banks in Nigeria to bring computers into the back office, kicking off a new era. But it was under President Olusegun Obasanjo (1999-2007) that banking in Nigeria really took off.

Risk and innovation

“The return of Nigeria to democratic rule in 1999 and the attendant unleashing of market forces no doubt heralded what we can now call a golden decade for the Nigerian economy,” adds Ovia. “The liberalisation of the telecommunication sector opened the sector for explosive growth.

The banking sector consolidation of 2004-2006 strengthened Nigerian banks and improved their resilience. The decade also witnessed a lot of creativity and innovation.”

That came to a grinding halt with the ‘over-exuberance’ of many Nigerian banks, which, with too much capital and not enough opportunity, piled into the stock market.

They often invested in their own stocks to inflate their price. The resulting financial crisis made clear to Ovia that “capital and liquidity are prerequisites for the survival of any financial institution.”

It was a period that checked Ovia’s own ascension, too. The CBN governor at the time of the banking crisis, Lamido Sanusi, passed regulations which prevented bank CEOs from running institutions for more than 10 years – a rule that affected both Ovia and Tony Elumelu, who was CEO of United Bank for Africa (#27).

Ovia is also an entrepreneur in the telecoms space, founding Visafone in 2007 after buying up several other telecom operators. It was eventually sold to South Africa’s MTN in 2015. Might that have been a strategic misstep? After all, MTN is now launching mobile-money services in Nigeria, a serious threat to banks like Zenith.

Ovia recognises the risks, saying that banks that are not innovative in adopting digital services will suffer.

He sees “a situation where many banks will collaborate with fintechs to smoothly surf the wave.” Given his team-building nous, this will be a space to watch.

‘THE OUTLOOK FOR GLOBAL OIL DEMAND IS POSITIVE […], THERE IS NOT MUCH TO WORRY ABOUT’

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

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DEBATE

Private equity vs. public markets

Should investors looking to get the most out of their money be putting their cash into listed shares or private-equity deals? The Africa Report talks to the experts to find out the pros and cons

By DAVID WHITEHOUSE The choice between public and private markets is complex enough for investors in developed countries. The standard argument is that while private equity – investing in firms that are not listed on stock exchanges – outperforms over the long term, it is logical for investors to give up some of this performance in return for the liquidity that public markets provide.

The calculations in Africa are a bit different. Figures from the African Private Equity and Venture Capital Association (APEVCA) at the end of 2018 show that returns from public and private markets in Africa are closely balanced, with private equity showing annual returns of 5.23% and 7.25% over 10 and 15 years, respectively – slightly less than the 6.15% and 7.75% for the MSCI Emerging Frontier Markets Africa index. Still, private equity held up better in the fourth quarter of 2018 as public emerging markets tumbled, with a 0.67% return in Africa versus a loss of 3.84% for the MSCI Africa index. The association bases its figures on the Africa Private Equity & Venture Capital Index, made up of 47 private equity and venture capital funds.

Insufficient liquidity

But the lack of that liquidity in many of Africa’s public markets changes the rules of the investment game. In June, Sanjeev Gupta, executive director at the Africa Finance Corporation (AFC), told The Annual Debate forum on African investment in London that public markets in Africa are suffering from a “very deep-rooted malaise”. There are plenty of consumer plays available, but that is at the expense of production, he said. “The continent’s productivity potential is not represented in the capital markets.”

That echoes the consensus among global investors that sufficient liquidity does not exist in African markets and that it will not for the foreseeable future. According to Capital Markets in 2030, a study by PwC and the Economist Intelligence Unit (EIU), fewer than 10% of

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27

national stock markets make up the African Securities Exchanges Association, prompting calls for a ‘super exchange’ on the continent

survey respondents expect either South Africa or Nigeria to lead in terms of initial public offering (IPO)-originating issuers by 2030, with China and India forecast to dominate.

The survey drew on 370 equity capital market participants and was carried out in July 2018. The investors polled considered liquidity by far the most important factor in choosing an exchange to list.

“There is zero reason to have 27 exchanges across the continent. Zero,” Gupta argued. As with airlines, he said, every country wants to have its own. A “super exchange” for Africa is needed, but Gupta sees no chance of that happening. In the meantime, the only practical way forward is for new exchanges to keep costs as low as possible by using new technology, he said.

Edoh Kossi Amenounvé, chief executive of the Bourse Régionale des Valeurs Mobilières (BRVM) regional stock exchange based in Abidjan, says that lack of liquidity is “always used as a pretext” for avoiding African public markets. Liquidity in African markets is much better now than five or 10 years ago, he argues. The idea that African

ADRIA FRUITOS FOR TAR

markets lack liquidity is “too quick” of a conclusion, he says: “Lack of liquidity is not a fatality.”

Liquidity cannot be achieved by decree, Amenounvé tells The Africa Report, but must be built over the long term, through wider choices of securities, new types of financial instruments and liquidity contracts. Low freefloat levels need to be increased, more stock splits are needed to cut the price of some shares and make them easier to trade, and the lending and borrowing of shares has to be facilitated, he says. The analyst research function in Africa also has to be developed. “There is still work to do, and we will do it.”

‘Fear factor’

At the AFC, Gupta still sees a dearth of strategies for attracting small and medium-sized enterprises (SMEs) to public markets. Instead, he argues, there exists a range of “subtle deterrents” to listing. In many parts of the continent there is a “fear factor” around disclosing personal wealth and the uses to which that information might be

put. That implies a need for much greater flexibility in terms of disclosure requirements, he argues. “Regulators won’t like to hear what I have to say.”

There is no obvious prospect of such flexibility being granted. Disclosure is “a hurdle that entrepreneurs have to get their heads around,” argues Nicky Newton-King, former chief executive of the Johannesburg Stock Exchange (JSE). “It’s the price of coming to capital markets.” She can’t imagine any easing up of JSE disclosure requirements. “It’s not how capital works.”

Newton-King says the JSE aims to end perceptions it is an emerging market exchange. She wants it to be considered on a par with London and New York. She says cross-national themes such as green investing are the way forward and sees potential in the development of green and global exchange-traded funds. Yet she acknowledges that South African institutional investors are “deeply risk averse”, with large funds reluctant to invest in SMEs. The PwC-EIU survey offered little comfort on the prospects for achieving such a goal. In terms of exchanges

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50

that global issuers will be considering beyond law firm. That was caused by an 80% drop in their home turf in 2030 for IPOs, Johannesburg domestic capital raising in Africa, with IPOs was mentioned by only 13% of respondents, raising just $85m, compared with $419m a year earlier. Baker McKenzie attributes the behind Singapore at 15%. Only 5% saw Nigeria African private equity as a possible destination. No other African decline to political and economic uncertainty exits are running country even got a mention.

– though e-commerce company Jumia’s listing at a fairly stable level A growing South African economy is needed this year on the New York Stock Exchange is of up to 50 per year, excluded from their figures. to create new listings, Newton-King says. That according to the chief executive of APEVCA requires the state balance sheet to be sorted Not many companies will follow Jumia’s example of listing on a developed market. out. There would be “significant implications” if South Africa’s last investment-grade rating with Christopher Marks, head of emerging markets EMEA Moody’s was lost, she says. Newton-King estimates that at Mitsubishi UFJ Financial, draws a contrast between she spends about 40% of her time on issues that concern Africa and Russia. In the Russian case, he says, the legitSouth Africa Inc., rather than the exchange. imisation that was achieved by corporate listings on the London Stock Exchange was often as important as the The Steinhoff corporate governance scandal has done little to improve the JSE’s prospects. Newton-King agrees cash that was raised. “There aren’t that many pan-African that Steinhoff has left behind a feeling that regulation in candidates that need the legitimacy at this stage,” he South Africa has not worked. There’s still “quite a bit of says. Management efforts to transform companies are work to do” in terms of proving the exchange’s commitprobably more important now, he argues. ment to regulatory standards. It is a challenge that the Public markets in Africa face difficulties of scale and exchange can’t tackle alone. “Guardians of governance have not shown that they are a “natural nursery” for dyneed to be more noisy,” she says. “When things seem to namic new companies, Marks argues. Public exchanges be going well, boards should ask the hard questions.” in Africa are “vulnerable to a high preponderance of glamour trades” which in turn leaves investors vulneraTrading costs ble to disappointment, he says. César Pérez Ruiz, chief investment officer at Pictet, agrees, arguing that listed Newton-King points out that the JSE has much lower companies in Africa are often state-owned enterprises execution costs than other African exchanges due to and are not run for the benefit of shareholders. economies of scale. According to the Bright Africa 2018 report published by RisCura, limited pools of licensed Public markets in Africa remain “relatively shallow,” says brokers in other African markets mean investors have Alexandre Alfonsi, a partner at Paris-based private-equity very little scope to switch to a competitor. Yet the low advisory firm Axonia. Public markets give only the tip volume of trades on African exchanges means that broof the iceberg of investable businesses, he says. Private equity provides greater diversification: “the investment kers charge more to cover costs. Egypt’s relative high liquidity, in comparison with Nigeria, which has a similar universe in private equity is so much bigger.” Axonia free float, is partly due to trading costs, the report says. this year supported the African private-equity manager EXEO Capital in a $146m fundraising.

Overall, RisCura says that investors in Africa need to consider alternative asset classes.

Stock market investors demand rising share prices, while debt funding often requires tough covenants from Capital raised by African issuers declined by 28% in the first half of 2019 to $341m, according to Baker McKenzie the company, argues Michelle Kathryn Essomé, APEVCA’s

80

4 60

2 40

2

Real Estate Utilities

Energy

Consumer Discretionary

Information Technology

Telecommunication Services

Materials

Industrials

Healthcare

20

1 0

Consumer Staples Financials

0 2013 2014 2015 2016 2017 2018

ZMSE

LUSE

132 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

UGSE

DAR

NGSE

CBSE

NASE MUSE GHSE

CASE

BSM

SOURCE: AVCA, S&P CAPITAL IQ AND RISCURA ANALYSIS

AFRICAN STOCK EXCHANGES RELATIVELY ILLIQUID Daily traded value by sector (one-year average) $m

AFRICAN PRIVATE EQUITY FUNDRAISING ROSE SLIGHTLY IN 2018 ($bn)

Former chief executive, Johannesburg Stock Exchange

‘The JSE is well placed to engage in order to fill a crucial gap in the market and to collaborate with our listed companies, to educate and look after their shareholders end-to-end.’ chief executive. These may not be easy hurdles for a small African company to overcome. Private equity can provide financial, strategic and operational support with the potential to transform a company, Essomé says.

Alfonsi likens investing in public markets to sitting in the back seats of a plane: “You don’t see what is happening in the cockpit.” In private equity, you can see the cockpit and the flight instruments, and talk to the pilot. Private equity will “put the muscle and sweat in”, and appoint new management if needed, Marks says. Essomé points to Kenya’s Java House coffee shop chain as an example of a small company that has been able to achieve scale but wouldn’t have been able to do so without private equity.

African private equity exits are running at a fairly stable level of 40 to 50 per year, says APEVCA’s Essomé.

Boots on the ground

Essomé says that the most attractive opportunities now can be found in real estate, financial services, education, consumer staples and discretionary spending. In geographic terms, she says, South Africa still leads, while Nigeria has also developed a deep private-equity market. Egypt and Kenya are also promising markets that are attracting more interest, she says. Due diligence for investments, Essomé adds, requires “boots on the ground.”

The investment case for private equity in Africa can be compelling, but liquidity is the Achilles heel. Finding an exit for private-equity investments in Africa is “a big question,” Alfonsi says. Possible paths are an IPO – leading back to the liquidity constraints of public African markets – or a sale back to managers.

MICHELLE KATHRYN ESSOMÉ Chief executive, African Private Equity and Venture Capital Association

‘Private equity has played a leading role in backing and nurturing promising companies in Africa, stepping in to provide funding to enterprises that have been unable to raise funding from other sources.’

TIISETSO MOTSOENENG/REUTERS; ALL RIGHTS RESERVED

NICKY NEWTON-KING

The unpredictability of events in many African countries makes finding the exit a “stop-go” process, Alfonsi says. Due diligence by potential buyers takes longer than in developed markets, he points out. “People have to pioneer what makes sense for them.”

Private equity in Africa has come a long way since the early 1990s when development finance institutions would invest in government-backed projects.

Increased investment from pension and endowment funds has reduced the concentration of development finance funding in private equity. The total value of African private equity fundraising increased to $2.7bn in 2018 from $2.4bn the year before, APEVCA data shows, with information technology (19%), consumer discretionary (15%) and consumer staples (13%) accounting for almost half of the total number of deals.

More specialised and targeted funds are emerging, such as the Mano River Transition Fund launched by Truestone in June. The fund will invest up to $50m in SMEs in Sierra Leone and Liberia.

Ultimately, the choice between public and private routes may prove to be a false dichotomy. Sub-Saharan economies that are based on debt need to achieve a transition to public markets, argues Amenounvé. Private equity, rather than being in competition with public markets, is a way to achieve this transition, he says.

Current exit routes will not be enough to support the volume of investment into Africa, Amenounvé says. In China, private equity helped to create the stock market, he says. In Africa, likewise, “private equity will feed the public market of the future.”

THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

133

FINTECH

Is there a bubble in Nigeria?

Telecoms firm MTN is going big into the mobile-money sector. Will it crash valuations or raise all boats in the financial ecosystem?

By KANIKA SAIGAL

Now Nigeria is in the midst of a fintech revolution.

The drive towards financial inclusion includes a young, Interswitch – a digital payments and commerce company tech-savvy population and the prevalence of smartphones, from Nigeria – is planning to list on both the London and creating an effective environment for new and nimble fintech companies to take off.

Nigerian stock exchanges by the end of the year. The company has sought advice from international bank At the same time, the Central Bank of Nigeria has introduced a number of initiatives. Critically, there was heavyweights including JP Morgan, Citi and Standard the National Financial Inclusion Strategy creation of a Bank on the initial public offering (IPO). Estimated valuations for the company are as high as $1.5bn. sandbox for fintechs to trial new products – products Dual listings from Nigerian companies are usually aimed to encourage access to finance for those that have been traditionally left out of the system. reserved for the likes of telecoms company Airtel – large multinationals that have built scale and reputation over This is an incredible about-turn by regulators and the government from 10 years ago when mobile money in time. But Interswitch’s ambition and valuation shows that Africa – particularly in East Africa – started fintechs are gaining ground. to take off. Strong lobbying by the banks in Nigerian fintechs offer a broad range of financial products to customers. Payment Nigeria at the time prevented non-bank players processing company Flutterwave (see from entering the financial landscape like Safaricom had done in Kenya, for example. page 112); Lidya, which lends to small and The number of startups medium-sized enterprises (see box); online Many have the opportunity to flourish in operating in Africa’s an environment where incumbent financial savings platform PiggyVest; and money-transfintech space has services are unwilling to invest in expensive fer company Paga are just some of the comgrown by more than panies in Nigeria that have created apps to bricks and mortar. Fintechs are also buoyed by 60% in the past make saving, spending, money transfer and the rising middle class, supportive regulation two years, according access to credit easier. to Disrupt Africa and the drive towards financial inclusion.

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134 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

Companies like Lagos-based Paystack have created apps to make saving, spending, money transfer and access to credit easier

– not at all. At the end of the day, investors are just going to pay what they think these companies are worth,” says Segun Aina, president of the Fintech Association of Nigeria (FAN). “Nigerian fintechs are developing at the margins. It’s a young, vibrant sector and there is plenty of room for growth and investment,” he says.

Between January 2015 and June 2019, fintech companies across Africa raised $320m, with the majority focused on South Africa, Kenya and Nigeria according to data compiled

by Disrupt Africa. And while there has been exceptional growth in the sector – 60% in the last two years – this is only a drop in the ocean. Globally, fintech companies raised $39.6bn from investors in 2018, up 120% on 2017’s numbers, according to data company CB Insights.

‘Suitcase banking’

SOURCE: CBINSIGHTS

AKINTUNDE AKINLEYE/REUTERS

But whether a bubble is forming boils down to something as straightforward as the definition, says Ameya Upadhyay, principal at VC firm Flourish, a spin-off of the Omidyar Network investment company.

INVESTMENT IN AFRICAN FINTECH “Look solely at the amount of cash AS OF FEBRUARY 2019 flowing into the Nigerian fintech Total funding ($m) Deals space, just a proportion of the $320m 300 100 into Africa, and there isn’t a bubble.

Fintechs in the country can easily absorb this amount of cash given 50 just how big the opportunity is,” says 150 Upadhyay. “But the issue in Nigeria In the past few years, a number of accelerator programmes have popped is that some companies gain much more attention than others. As such, up to offer support and advice to 0 0 2015 2016 2017 2018 2019 a lot of the investment is focused on develop Nigerian startups. Others have been accepted on prestigious a small group of companies and there accelerator programmes in the US. International invesis a growing risk that valuations are becoming distorted.”

‘Suitcase banking’, which African markets continue to tors are beginning to take note. Mastercard, Visa and grapple with, despite increasingly becoming ingrained Tencent have all invested in the sector, and a number in the global financial landscape, is a major part of the of global venture capital (VC) companies have helped some of Nigeria’s most promising fintech startups raise problem. Armed with cash but with little local knowledge, early-round funding. investors fly in – or worse, assess investment targets from hubs in Europe or the US – hoping to find the next big thing.

Building scale Could this be the case with Interswitch? “Whether a “An IPO is one measure of success – perhaps one of the fintech deserves this attention is subjective, and this most visible,” says Tahira Dosani, managing director at may influence valuations,” says Upadhyay, without mentioning specific companies.

Accion Venture Lab. “And for many fintechs in Africa it’s the holy grail,” she says. Nigerian startups will need to In August, South African telecoms giant MTN was build scale first. Mergers, acquisitions or exits through granted a “super-agent” licence by the Central Bank of secondary sales are essential steps towards an IPO, but Nigeria, which will allow the largest telecoms company in the country to provide financial services to its subnews that Interswitch is making plans show just how much the Nigerian fintech landscape is evolving. scriber base. With these newfound powers, Nigeria’s As Nigerian fintechs gather momentum, questions are burgeoning fintech sector could come crashing down, fulfilling fears of a bubble. emerging around whether their valuations are inflated. For those with local expertise in Nigeria’s fintech ecosystem, But Accion Venture Lab’s Dosani is not worried. “Mobilemoney licences are positive for the ecosystem, creating however, there is not a bubble in what companies are worth. more payment options for consumers and helping drive “For the most part before an IPO, fintech valuations are the adoption of digital services. If anything, it creates a under wraps. But companies are not necessarily overvalued

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Fear of an exodus

37

Nearly 37 of every 100 adults in Nigeria are still unbanked, according to the EFInA Access to Financial Services in Nigeria 2018 Survey

Data from the EFInA Access to Financial Services in Nigeria 2018 Survey shows that 36.8% of Nigeria’s adult population is still unbanked, so the pie may be big enough for everyone.

For the FAN’s Aina, discussions around whether a bubble is emerging distracts from the more pressing issues facing Nigerian fintech. “As more international investment comes in, there is a real risk that controlling interests leave Nigeria,” he says.

“Eventually, as fintechs grow and turn a profit, Nigeria’s economy will not benefit from this growth if they end up moving operations and ownership offshore. There needs to be a lot more discussion around how we can develop a dynamic fintech sector in the country and create incentives to encourage local investment and for Nigerian fintechs to stay here,” he says.

Aina points to the fact that Africa-focused e-commerce company Jumia is incorporated in Germany, has a tech team based in Portugal and is now listed on the New York Stock Exchange. Meanwhile Flutterwave’s headquarters are in San Francisco, digital credit platform Mines also relocated there, and Paystack now has offices in Lagos as well as San Francisco.

Another challenge for Nigerian fintech growth? The bulk of liquidity is still offshore. “Nigerian capital markets are developing, and money is making its way over here. But there is a lot to be gained if companies such as ours go to investors in places such as London and New York,” says Kehinde. Nigeria’s capital markets will need to evolve just as quickly as the fintech sector, if the country wants to keep hold of these new, nimble financial services companies.

136 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

TUNDE KEHINDE Chief executive, Lidya LIDYA

payment infrastructure that fintechs can leverage, driving more fintech opportunity. I don’t think this escalates bubble fears,” she says.

Other players in the sector agree. “The market is very far from a bubble,” says Tunde Kehinde, chief executive of Lidya. Banks that have stayed away from SMEs in the past now see a viable route to banking them by partnering with fintechs in the country. This also means that they are able to meet financial inclusion goals. For them, fintechs entering the space is less of a threat and more of an opportunity. “There is such a large gap for financial services and a lot of room for more entrants and more solutions for customers,” he says. “More solutions from new entrants will be great for consumers and will spur innovation as fintechs, alternative financiers, telecoms companies and banks look to be the partner of choice for their target customers,” he adds.

‘THIS IS SOMETHING BANKS JUST CAN’T AFFORD TO DO’ Micro, small and medium-sized enterprises (MSMEs) in developing countries have an unmet finance need of $5.2trn each year, according to data collected by the International Finance Corporation.

In Africa – where small businesses are the backbone of economic growth and development – the figure stands at $331bn. Nigeria accounts for a third of Africa’s funding hole. “Nigerian banks tailor solutions to meet the needs of large, valuable corporate customers but this is something they just can’t afford to do for smaller companies in the market for smaller, shorter-term loans,” says Kehinde.

“Companies like ours are the only ones that can fill this gap,” he adds. Kehinde speaks in his role as chief executive of financial services platform Lidya, while leaning on his experience as co-founder and former managing director of online retailer Jumia and co-founder of logistics company ACE. He has seen first-hand how the exclusion of small Nigerian businesses from the financial landscape has stifled economic growth. “We saw it through our logistics company,” says Kehinde. “Smaller businesses in Nigeria couldn’t get scale because they couldn’t get access to credit for growth and couldn’t use our services. Something had to give, so Lidya seemed like an obvious solution.”

Founded in 2016 with his business partner Ercin Eksin, the company focuses on providing access to credit for SMEs across Nigeria via its online platform.

Loans can go from $500 to $50,000 at a time.

Decisions usually take around three days for new customers, but subsequent loans are usually issued within 24 hours – as long as there haven’t been any issues with previous payments. The fintech accesses data from a number of different enterprise partners to carry out the necessary due diligence on those applying for loans without the need of audited financials, collateral or even bank statements. “We have automated data collection, which cuts costs and time in terms of ‘know your customer’ anti-money laundering legislation and a number of other timely processes,” Kehinde says. To date, Lidya has issued more than 7,000 loans.

Interview by KANIKA SAIGAL

London

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Prince Gyasi, Energy is Contagious, 2018.

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ENERGY FINANCE

More wary of betting on barrels

A series of gas deals are getting approval as investors deal with shifting winds in the global energy market and concerns about the future of world economic growth

By OHENEBA AMA NTI OSEI

30 Capital expenditure (US$ billions)

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138 THEAFRICAREPORT / N° 109 / OCTOBER-NOVEMBER-DECEMBER 2019

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Cost of delays

The final investment decision (FID) on Shell’s long-stalled Bonga South-west offshore field project in Nigeria has suffered considerable delays due to an outstanding tax dispute with regulators. In February this year, Shell’s head of upstream Andy Brown told Reuters that FID on the multibillion-dollar project, which is expected to produce 180,000 barrels of oil per day, will not happen until the issue is resolved.

And delay costs can add up quickly. “Delayed FID can also mean you delay other aspects of the project’s value chain. So you’re thinking of bringing ancillary

Number of projects

A new wave of LNG projects is taking shape

Shell Sonangol Exxon Ode-Aye EP Mobil Refinery

0

SOURCE: GLOBALDATA

Amidst strong shale production from the US Permian Basin, trade wars and low oil prices, 2019 has not been a blockbuster year for oil and gas financing in Africa. Paul Eardley-Taylor, head of Standard Bank’s (#1) oil and gas sector coverage activities for Southern Africa, explains: “In the last few years, the world’s energy balance has completely changed as a result of the Permian. So any project is now competing against the Permian for the next decade.”

Getting promising African projects off the ground does not come cheap and boosting investments in the energy sector will be key moving forward. According to GlobalData, an estimated $194bn will be required to fund 93 oil and gas projects planned across the continent between 2018 and 2025. Africa’s oil and gas industry will also require $1.6trn and $721bn cumulative infrastructure investment between 2013 and 2035, respectively, according to data from Africa Oil & Power.

And with commercial and political risks as well as regulatory setbacks also hindering investments, the bill could be much higher. Rolake Akinkugbe-Filani, head of energy and natural resources at Nigeria’s FBNQuest Merchant Bank, says African banks have not been big players in oil and gas finance. “Most of these projects require long-term funding, and because of some of the regulatory challenges the financial services sector and capital markets in Africa had over the last decade – particularly since the financial crisis in 2008 – the ability to source money for seven to 10 years tenure locally is increasingly limited. Commercial banks aren’t really able to stretch for that long,” she says.

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infrastructure into the country; that is delayed. from the Australian and the American projects coming online. That didn’t happen because You may have placed orders for certain component parts of drilling equipment; that may the Chinese started buying LNG. And with also be delayed. Some of these things have that sort of Chinese demand, it gives people oil and gas projects huge costs, and obviously time is money,” a lot of confidence for the next wave of FIDs.” are being planned Akinkugbe-Filani adds.

After several successful natural gas discovacross the continent The lack of sufficient demand is another eries, Mozambique is set to become a top LNG between 2018 and 2025, exporter in the next few years. The country’s barrier hindering energy financing across requiring funding Coral FLNG project was able to reach FID in the continent. Initially expected in mid-2016, amounting to an estimated $194bn 2017 – first gas is expected in June 2021 – deFID for Equatorial Guinea’s Fortuna floating liquefied natural gas (FLNG) project has been spite the volatile and uncertain global pricing delayed several times due to Ophir Energy’s inability environment. In June 2019, another LNG project led by US to source the $1.2bn needed to finance the project. In energy firm Anadarko reached its $20bn FID, the largest January 2019, the UK-based firm lost its licence to the single LNG project approved in sub-Saharan Africa oil block that contains the Fortuna discovery. and gas. FID on ExxonMobil’s multibillion-dollar Rovuma LNG project is also expected by the end of 2019. On the On the positive side, other projects are picking up, with a new wave of liquefied natural gas (LNG) projects leading import front, France’s Total signed a deal in July with the the pack. The Paris-based International Energy Agency electricity utility in Benin for a new floating storage and predicts gas will overtake coal by 2030 to become the regasification unit to supply power plants. world’s second-leading fuel. Gas will play an increasingly significant role as a transition fuel in Africa.

Looking beyond banks Standard Bank’s Eardley-Taylor explains: “You’ve got Other LNG projects awaiting FID on the continent include prices coming back, which means that companies have Tanzania’s $30bn LNG venture in the country’s Lindi more free cash flow. You’re expected to have a glut of LNG Region, UK-based NewAge’s 1.2m tonnes per annum (tpa) FLNG project in the Republic of Congo and a seventh LNG train in Nigeria that would expand the country’s LNG production capacity from 22m to 30m tpa. With a focus on gas, Akinkugbe-Filani says that Africa can look farther afield for good examples: “Qatar has been able to monetise its gas resources effectively to trigger and spark industrialisation across a number of energies as well as petrochemicals, fertilisers, LNG for export and then using that as a base to develop vibrant cities.”

In some cases, financing these big projects has required looking beyond traditional banks to more creative nonbank and capital markets-based funding such as infrastructure bonds, quasi-debt and private equity funding.

Sourcing funds from development finance institutions, international and multilateral finance institutions is another alternative because they are a “key source of de-risking a project and opening it up to other sources of funding,” says Akinkugbe-Filani.

However, Standard Bank’s Eardley-Taylor argues that fundraising problems are market- and project-specific and in many countries a traditional finance model has an important role to play.

“The example of LNG in Mozambique is where traditional banking models are absolutely working,” he explains. “So I think a lot of that is about the underlying type of projects we’re talking about and what the client’s drive is. If the client is looking to avoid to put in equity as it happens from time to time, then absolutely you’re going to need unconventional stretches because there’s no equity in there.”

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INTERVIEW

‘We’re creating a cashless economy’ The chief executive of Ecobank Transnational (#16) reveals how using tech to formalise remittance flows will benefit both banks and African economies Interview by PATRICK SMITH TAR: How important is finance from the diaspora for African economies?

We’re looking at over 50 million people. Each of those people earns on average more than 10 times the average per capita income of people on the continent. Their ability to transfer money home to improve purchasing power and demand capacity is there. The responsibility for the banking system is to figure out how to reduce friction in that transfer process. With the current level of technology and economics, people can remit money to the continent in a friction-free way almost instantly.

Many remittances go through informal channels because they are faster and cheaper. What are the benefits from formalising remittances?

It’s better for the remittance to go through the formal financial system.

When it goes through informal systems, it’s not predictable. The country cannot plan. If you look at a place like

Nigeria, if it knows that it would get $20bn annually in foreign remittances through official channels, it becomes a predictable capital flow.

How will you persuade people to use the banks and money transfer companies?

The financial services institutions, development financial institutions and the African Union [AU] want to bring the price down and improve the quality. It means making the exchange rate very close to the market exchange rate and making execution almost instantaneous. We should allow free competition to ensure that the banking system behaves responsibly. We cannot get good flow at the current rate of 7%-10%. So we believe that the price needs to come down substantially.

I wouldn’t encourage the AU or any other union to determine the price.

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What do you think is a fair fee for remittances?

I think anything more than 3% is too high if you’re going to supply it instantly. If it’s going to take some time to execute, then you should be looking

central bankers need to recognise that the remittances don’t have to go only to individuals. It’s much better if they flow through the [formal] financial system of choice by the person doing the remitting or receiving it. Once those things are done, then people would demand products based on who can offer the right service.

at as low as 1%. Then that makes it at a level that can remunerate capital for supplying the remittance product and that can also attract people that want to do the remittance.

What will the data from formalising remittances and boosting mobile money be used for?

M-Pesa is a great product because a problem was solved by including people in financial services, but the government of Kenya was ready to trade control for inclusion. […] Why should people care? It allows more information to be available in the days of big data and the ability to analyse that data. And you can see a higher level of the transactions passing through. Because […] you compare the GDP of Ghana to the GDP of New York, and Ghana is much less than New York. And you start asking the question: ‘Are we counting this differently? Are we not able to predict the right demand and therefore the right inBANKING BEYOND vestment level in these various countries?’

BORDERS A lot of investments are based on a leap 1998 of faith. But including large numbers of Got his first job in banking, transactions in the financial system in working at Citibank Nigeria a cashless way allows those things that were happening to be measured. You March 2006 can say: ‘There are lots of people that Promoted to director can demand this product that I want to for Citibank Kenya, Tanzania, invest in.’ That allows you to make that Uganda and Zimbabwe decision in a much more informed way.

September 2013 Named director for subWhy did mobile money take longer Saharan Africa at Citibank to get established in West Africa

than East Africa?

September 2015 How can remittances play a more proAs somebody who lives in Togo, a small Became chief executive ductive role in economies? country, [I can say] it’s not a function of of the Togo-based Ecobank The first thing is a recognition that there your [country’s] size. You need leadership Transnational to be able to create innovative solutions are a lot of people living outside that want to and to be able to put it to market. Kenya support the economies of the countries they came from. [This] will help to keep people in just demonstrated a faster agility than West Africa. But I think that’s probably because Kenya those countries and improve demand capacity. We always talk about migration. But if the resources sit in the North, didn’t have oil and they needed to innovate quickly. the people in the South will come looking for resources.

They’ve done that. The rest have learnt from them.

By the way, the payment systems in some of the West There has to be a recognition that remittances are African markets are faster than some of the US markets. important and policy should support them. There is a lot of conversation about remittance as if it’s a ‘black flow’ It’s just a question of people who have a problem. They want to solve it. The current level of technology allows that doesn’t need to be discussed in official quarters. them to get that done and we don’t have investment in The World Bank is now looking at their size and saying legacy systems that impair the institutions from getting something needs to be done. that done. So today across the continent, the ability to And there are a lot of people that are working, but they make payments instantly is something that we feel very don’t have papers. We should try and figure out how to include them in the financial and banking system [in Africa] happy about and we can do payments across African countries as fast as we can do payments in Europe. so that remittance flows can serve a higher purpose. African

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