2014 THE AFRICA REPORT finance special by The Africa Report

TOP

200 BANKS

FINANCE SPECIAL EDITION

S E P T E M B E R 2 014 - w w w.t heaf r ic arepor t .com

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NIGERIA

THOMAS PIKETTY

Tough times ahead warns

Mortgage finance to

â&#x20AC;?Strong markets need

new finance minister

transform economy

strong governmentsâ&#x20AC;&#x153;

Africa bets

on Africa Businesses and governments across Africa seize the profit potential at home

GROUPE JEUNE AFRIQUE INTERNATIONAL EDITION

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CONTENTS

TOP

FINANCE 200 SPECIAL EDITION

BANKS

S E P T E M B E R 2 014 - w w w.t heaf ric arep or t .c om

STOCK EXCHANGES • REGIONAL ANALYSIS • KEY DE ALS • FACES OF FINANCE • STAR PERFORMERS • INNOVATION

SOUTH AFRICA

NIGERIA

THOMAS PIKETTY

Tough times ahead warns

Mortgage finance to

”Strong markets need

new finance minister

transform economy

strong governments“

Africa bets

on Africa

THE AFRICA REPORT | FINANCE SPECIAL SEPTEMBER 2014

Businesses and governments across Africa seize the profit potential at home

GROUPE JEUNE AFRIQUE INTERNATIONAL EDITION

Algeria 550 DA • Angola 600 Kwanza • Austria 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denmark 60 DK • Ethiopia 75 Birr • France 4.90 € • Germany 4.90 € • Ghana 7 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 50 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 9,000 • South Africa 30 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 6,500 shillings • Tunisia 8 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zimbabwe US$ 4 • CFA Countries 3,500 F CFA

PLUGGED IN Nigerian banks that survived the radical reforms of a decade ago are now reaping the benfits as they finance the country’s power revolution FINANCE SPECIAL EDITION

TOP 200 BANKS MIND THE (FUNDING) GAP Finding money for transformative investment has always been a struggle in Africa - but now banks and governments are joining forces to drive the mobilisation of Africa’s own resources, and find long-term funds to finance the development demands of the continent

RECOVERY HITS A ROUGH PATCH As an era of cheap money ends, bankers are looking to innovations to attract the unbanked and increase deposits

04 Editorial Shhh, the grown-ups are talking TRENDING

FINANCING GROWTH

06 Briefing 10 Dealbook 12 US-Africa Summit Tearing down barriers 14 Interview Thomas Piketty, economist

38 Power Local banks plugged in 44 Insurance Global downgrading is good news for Africa 48 Private Equity Bringing in capital and a fresh perspective

COVER CREDITS: CHRISTIAN KASONGO/JA; FOTOLIA

COUNTRY FOCUS FRONTLINE 18 Finance Mind the (funding) gap 24 Interview African Development Bank President Donald Kaberuka

53 Mauritius Missing the sweet spot 60 People to Watch Bruisers, bankers and business leaders 64 Manufacturing Made in Mauritius 66 Textiles Tailored for growth 68 Finance Building a banking hub

PEOPLE INNOVATION

27 Investment Faces of finance 34 Interview Nhlanhla Nene, finance minister of South Africa

70 Mobile Money Banks get ready to take on M-Pesa

74 Interview Bob Collymore, Safaricom CEO 79 Mortgages Nigeria loans for less TOP 200 BANKS 82 Overview Recovery hits a rough patch 87 Rankings Top 200 banks 96 East Africa Technology the key to retail survival 98 West Africa Economic engines back on course 102 Central Africa Big banks expand beyond their borders 106 Southern Africa Weathering the storm 110 Northern Africa In transition, banks slowly regain trust 114 Last Word The way of the dragon?

ADVERTISERS’ INDEX CARTIER p 2; FIRST BANK p 5; AIR FRANCE p 9; AFRASIA BANK p 11; TOTAL p 13; BEAC p 16-17; BARCLAYS AFRICA p 21; STANDARD BANK p 23; TAR READER SURVEY p 25-26; AFRICAN GUARANTEE FUND p 31; ORYX ENERGIES p 33; SAHAM GROUP p 35; ATTIJARIWAFA BANK p 37; AFREXIMBANK p 41; LIQUID TELECOM p 43; AFRICAN UNION p 45; AFRICA GOLBAL BUS. FORUM p 45; AFRICAN TRADE INSURANCE AG. p 47; AFRICANEWS p 47; THE AFRICA CEO FORUM p 49; RAWBANK p 51; MCB GROUP p 52, 57; MEDINE LIMITED p 58-59; SARAKO p 61; MTPA p 63, 67; KROSS BORDER p 65; ADEXEN p 67; ABAX SERVICES p 69; BGD p 73; COTE D’IVOIRE - THE RENEWAL p 75-78; 2IE p 81; COMMERZBANK p 85; BFA p 89; TAR DEBATES p 91; REPUBLIC OF DJIBOUTI p 93; GEP - 3rd EAOGS p 95; EKO HOTELS p 99; CBS - TVC NEWS p 101; UNCTAD World Inv. Forum p 103; THE WARTHON CLUB OF AFRICA p 103; BLOOMBERG TV AFRICA p 105; BEACHCOMBER p 107; FRISOMAT p 109; NIGERIA INFO p 109; AFRICONOMIE p 111; TAR SUBSCRIPTION p 111, 113; MERCEDES BENZ AFRICA p 115; ECOBANK p 116

To order more copies of TAR Finance Special Edition: sales@theafricareport.com THE AFRIC A REPORT

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FINANCE SPECIAL

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EDITORIAL

THE AFRICA REPORT A Groupe Jeune Afrique publication

BY NICHOLAS NORBROOK

57-BIS, RUE D’AUTEUIL – 75016 PARIS – FRANCE TEL: (33) 1 44 30 19 60 – FAX: (33) 1 44 30 19 30 www.theafricareport.com

Shhh, the grownups are talking

West African president, who shall remain nameless, grumbled ahead of August’s United States-Africa summit: “Who does Obama think he is, summoning us to Washington like schoolchildren?” Everyone resents being lectured. There are numerous tales of experienced finance ministers grinding their teeth while young men from the World Bank explain how they should do their jobs. However, the global elite is no longer shushing new voices like wayward children. This is partly due to a reassessment of the past. In our finance edition last year, World Bank president Jim Yong Kim admitted the bank had been too ideological. But it is mostly because the rest of the world, including much of Africa, has seized the day. This is not just about the new BRICS bank pooling resources from China, India, Brazil, Russia and South Africa or the African Monetary Fund being set up in Yaoundé, Cameroon. It is predominantly Africans investing in Africa that is making the difference. For example, African Development Bank president Donald Kaberuka has long called for African investors to take capital kept in US treasury bills and invest the money in infrastructure projects at home. That advice is being followed in three of Africa’s largest economies. Nigerian and Kenyan pension monies are being put into vehicles that invest in local road and power projects, while South Africa’s pension funds are putting money into private equity funds focused on Africa. In July, Nigerian oil company Oando bought ConocoPhillips’s local assets, raising half the capital for the $1.5bn dollar deal from Nigerian banks. This is the fruition of both

CHA I R M A N A ND F O UND E R BÉCHIR BEN YAHMED P UB L I S HE R DANIELLE BEN YAHMED publisher@theafricareport.com E X E CUT I VE P UB L I S HE R JÉRÔME MILLAN

corporate ambition and policies that promote indigenous players. You can talk of backing African firms now without being painted an eyebulging, Hugo Chavez-sympathising resource nationalist. On a wider canvas, the International Monetary Fund (IMF) has praised the Ethiopian government for its work to improve the livelihoods of poor people, despite Ethiopia championing ideas counter to the Bretton Woods orthodoxy, such as industrial policy. The IMF even surprised itself with a report on inequality that finds that progressive taxation has little effect on growth and that greater equality can spur growth, something that Brazil’s former president Luiz Inácio Lula da Silva has long insisted. Thomas Piketty, a French economist who has recently caught the attention of the White House, has resurrected inequality as a serious topic of debate, while top US conservatives like Marco Rubio and Eric Cantor are making speeches about it. Piketty is no radical. He tells The Africa Report that property rights are the bedrock of a successful economy (see page 14). He says he relishes today’s climate, where these issues can be debated without accusations of being a closet communist. Even if they disregard his policy advice, his critics often admit that the data gathered on inequality matters. Conversations are now broadening; and Africa has a seat at the table. ●

You can talk of backing African firms now without being painted an eye-bulging, Hugo Chavezsympathising resource nationalist

M A R K E T I NG & D E VE L O P M E NT ALISON KINGSLEY-HALL E D I T O R I N CHI E F PATRICK SMITH M A NA G I NG E D I T O R NICHOLAS NORBROOK editorial@theafricareport.com A S S I S TA NT E D I T O R CHARLIE HAMILTON E D I T O R I A L A S S I S TA NT OHENEBA AMA NTI OSEI R E G I O NA L E D I T O R PARSELELO KANTAI (East Africa) A RT & L I F E E D I T O R ROSE SKELTON S UB - E D I T O R S ALISON CULLIFORD MARSHALL VAN VALEN ERIN CONROY P R O O F R E A D I NG KATHLEEN GRAY A RT D I R E CT O R MARC TRENSON DESIGN VALÉRIE OLIVIER SYDONIE GHAYEB CHRISTOPHE CHAUVIN ÉMERIC THÉROND ÉRIC LE MIÈRE P R O D UCT I O N PHILIPPE MARTIN CHRISTIAN KASONGO R E S E A R CH ANGÉLINE VEYRET WITH SYLVIE FOURNIER & FLORENCE TURENNE P HO T O G R A P HY CLAIRE VATTEBLED O NL I NE PRINCE OFORI-ATTA SALES SANDRA DROUET SOLÈNE DEFRANCQ Tel: (33) 1 44 30 18 07 – Fax: (33) 1 45 20 09 67 sales@theafricareport.com CONTACT FOR SUBSCRIPTION: Webscribe Ltd Unit 8 The Old Silk Mill Brook Street, Tring Hertfordshire HP23 5EF United Kingdom Tel: + 44 (0) 1442 820580 Fax: + 44 (0) 1442 827912 Email: subs@webscribe.co.uk 1 year subscription (10 issues): All destinations: €39 - $59 - £35 TO ORDER ONLINE: www.theafricareportstore.com D I F CO M INTERNATIONAL ADVERTISING AND COMMUNICATION AGENCY 57-BIS, RUE D’AUTEUIL 75016 PARIS - FRANCE Tel: (33) 1 44 30 19-60 – Fax: (33) 1 44 30 18 34 advertising@theafricareport.com A D VE RT I S I NG D I R E CT O R NATHALIE GUILLERY R E G I O NA L M A NA G E R S CAROLINE AH KING FADOUA YAQOBI LILIA BENACEUR ELODIE BOUSSONNIERE US R E P R E S E NTAT I VE AZIZA ALBOU a.albou@groupeja.com

editorial@theafricareport.com THE AFRIC A REPORT

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FINANCE SPECIAL

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PRINTER: SIEP 77 - FRANCE N° DE COMMISSION PARITAIRE : 0715 I 86885 Dépôt légal à parution / ISSN 2264-3303 THE AFRICA REPORT is published by GROUPE JEUNE AFRIQUE

!"# $%&'(

TRENDING

DEVELOPMENT The BRICS nations of Brazil, Russia,

India, China and South Africa announced the launch of a new development bank to rival the IMF and World Bank.

EBOLA Sierra Leone’s GDP may shrink

MINING Anglo American Platinum unveiled plans to sell off its Rustenburg and Limpopo mines in South Africa after a series of strikes.

by 4% due to the ongoing outbreak of the deadly disease, according to AfDB estimates.

CAPITAL MARKET

is the reduction in the level of fees generated by investment banks in sub-Saharan Africa during the first half of 2014 compared to the same period in 2013. Investment banking in SSA is collecting its lowest fees since 2010. FINANCE MINISTER SETH TERKPER IS A WORRIED MAN

LOANS MICRO FINANCE, BIG GROWTH

GHANA

Region

Gross loan portfolio growth rate 2014

South America

15-20%

Central America

10-15%

Sub-Saharan Africa

15-25%

MENA

10%

Central Asia

15-20%

Eastern Europe

5-10%

South, South East and East Asia

25-35%

Total

15-20%

Analysts expect a worldwide surge in microfinance projects of up to 20% in 2014, while this could peak at 25% in sub-Saharan Africa. This is still less than the prediction for Asia, which some expect to top 35%.

IMF GETS BAILOUT CALL

hana finally turned to the International Monetary Fund (IMF) for help on 8 August after several months of bad news on inflation, the depreciation of the cedi, the budget deficit and the current account deficit. Ghanaian officials have been disappointed by lower-thanexpected oil revenue since production began in December 2010 and remain unable to reduce a public-sector wage bill that accounts for more than half of government revenue. The government had previously said that it would go it alone with a strategy to raise revenue, improve financial management and address energy problems.

Soliciting the help of the IMF was an attempt by the government to bolster its intended sale of a new eurobond before the end of September. The IMF has not agreed to implement an aid programme in Ghana and is sending a delegation to Accra in September, nor has it supported Ghana’s plans for more borrowing through the eurobond issuance. The cost of borrowing on the domestic market is high, and the yield on three-month treasury bills hit 25% in August. Before Ghana asked for help, the IMF warned that current expenditure was eating up money that should be spent on infrastructure, health and education. ●

THE AFRIC A REPORT

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S E P T E M B E R 2 0 14

25%

SOURCE: RESPONSABILITY – MICROFINANCE OUTLOOK 2014

TRENDING

INVESTMENT More than $530m in investment funding was raised by Swiss private bank Edmond de Rothschild for its inaugural Africa fund.

FINANCE Uptake of mobile money telephone banking, such as Kenya’s M-Pesa, is soaring, with 203 million accounts held worldwide, new data revealed.

RAIL Kenya and China signed a $3.7bn deal

to finance the construction of a new 609km rail line linking Nairobi to Mombasa.

EYEPRESS NEWS/SIPA; CARL DE SOUZA/AFP; STR/EPA/CORBIS; MARTIAL TREZZINI/KEYSTONE/MAXPPP; SVEN TORFINN/PANOS-REA; STR/AP/SIPA

EXCHANGES AFRICA’S BEST AND WORST PERFORMERS Av weekly trade

Nairobi

87.9%

$43.4m

Dar es Salaam

77.4%

$1.5m

Uganda

71.4%

$4.3m

Stock Exchanges

3-Year Return*

Ghana

Av weekly trade

-26.7%

$1.6m

Botswana

-4.3%

$4.5m

Mauritius

-2.8%

$10.0m

EASTERN EUROPE & CENTRAL ASIA

BANKING ACCESS HOW FAR TO VISIT YOUR LOCAL BANK

The number of bank branches per 100,000 adults in Africa compared to the rest of the world

*US DOLLAR-ADJUSTED RETURNS

Africa’s has long been a draw for foreign direct investment (FDI) but much of this funding is directed towards major cities and regions. According to a survey carried out by EY, these are the locations where most investors sought to launch FDI projects. Algiers Algeria

Tunis Tunisia

SOURCE: EY’ 2014 AFRICA ATTRACTIVENESS SURVEY

Casablanca Morocco

Lagos State Nigeria Nairobi area Kenya Dar es Salaam Tanzania

Luanda Angola

Gauteng South Africa Western Cape South Africa

THE AFRIC A REPORT

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Maputo Mozambique

LATIN AMERICA & CARIBBEAN

Barack Obama the US president outlining his vision of bilateral trade at the US-Africa summit in August

Kwa Zulu-Natal South Africa Eastern Cape South Africa

FINANCE SPECIAL

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17 8

MIDDLE EAST & NORTH AFRICA

SOUTH ASIA

2 3 SUB-SAHARAN AFRICA

EAST ASIA & PACIFIC

In conjunction with GeoPoll, The Africa Report asked 400 people across four African countries a question:

is determined to be a partner in Africa’s success. A good partner, an equal partner, and a partner for the long term.”

A-Qahirah Egypt

Greater Accra Region Ghana

EURO AREA 9

“The US

INVESTMENT AFRICA’S FDI HOTSPOTS

Tangier-Tetouan Morocco

2004 2011

19 9

Did you send or receive money electronically in the last 7 days?

SOUTH AFRICA 34%

yes

66%

KENYA

RICK BAJORNAS/UN

3-Year Return*

SOURCE: INVESTING IN AFRICA

Stock Exchanges

33%

67%

NIGERIA 22%

78% DRC 17%

83%

GeoPoll is a mobile surveying company that uses the mobile phone to connect with Africans and others across the developing world, using text messaging and other modes of communication. To join the global GeoPoll network and answer short surveys like this one, please visit m.geopoll.com

TRENDING

ETHIOPIA EXPLORATION CONTINUES

$100 billion

ANGOLA SOURCE:

2014 EUTERS

DEBT FOOTHILLS Sub-Saharan debt issues hit $5.2bn in the first half of 2014, the highest half-year total since 2011, and a 3% increase on the same period last year, as confidence fuels borrowing.

NIGERIA NEW MONEY FOR ROADS With the country’s sovereign wealth fund preparing to invest and the ARM Infrastructure Fund closing its fundraising in midAugust, there are new sources of funding for Nigerian infrastructure. The ARM private equity fund has a West African focus and will invest in transport, energy and utilities. It closed fundraising in mid-August with a target of $250m. Its backers include the African Development Bank and a number of Nigerian pension funds. It will target returns of 18-20% over a 12-year period from investments in existing and new infrastructure projects.

BESA BLUES RUN DEEP

With troubles for Portugal’s Banco Espírito Santo at home in July, a case of bad loans rocked its Angolan subsidiary and caused worries about the health of the Angolan financial sector. In mid-July, Portugal’s Expresso newspaper published a document signed by Angola’s President Eduardo dos Santos in December 2013 to authorise a $5.7bn state guarantee for the troubled loans of privately owned Banco Espírito Santo Angola (BESA). BESA’s loans-to-deposits ratio grew rapidly under the tenure of former chief executive Álvaro Sobrinho, who left the bank in 2012. The Angolan government has not been open about BESA’s problems, but Banco Nacional de Angola governor Jose de Lima Massano said in July that BESA would need a capital injection in order to rebalance its books. Massano argued that BESA’s troubles would not threaten the wider banking industry. However, the central bank’s statistics showed that non-performing loans across the sector rose to 10.2% in October 2013 from 6.1% in September 2013. BESA has had a close relationship with the ruling elite in Angola. In Portugal, Banco Espírito Santo is under investigation for accounting irregularities, and bank founder Ricardo Salgado is a subject of policy enquiry in cases involving fraud and money laundering. The authorities have not issued any charges against Salgado. ●

THOMSO

is the level of investment that Sonatrach, the stateowned Algerian energy giant announced it would push into oil and gas production by 2018. It has pledged to develop shale gas reserves and combat sliding output. Local energy needs have been rising fast, while production has been stagnating.

MARIO PROENCA/BLOOMBERG VIA GETTY IMAGES

Despite oil company Tullow’s recent disappointing results in Ethiopia, Russia’s Gazprombank Group says it may invest about $60m in exploration there. In July, GPB Global Resources signed a production-sharing agreement that covers a seven-year exploration period for a block in the Afar Region. Toronto-listed Africa Oil Corporation, an oil and gas company with acreage in East Africa, launched a secondary listing on the stock exchange in Stockholm in July. It reported a dry well in Ethiopia’s Chew Bahir Basin during the same month and said it would now focus on prospects in its South Omo Block.

ALGERIA

“The problems that have NADINE HUTTON/BLOOMBERG VIA GETTY IMAGES

beset African Bank are, in our view, largely specific to their current business model.” Gill Marcus, the South African central bank governor said, following the announcement that the Reserve Bank would step in to rescue troubled African Bank, which reported heavy financial losses in 2013/14. THE AFRIC A REPORT

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ROYAL SHOPPING IN PARIS Paris-Charles de Gaulle: enjoy a pleasant stopover while discovering the many luxury shops and relaxing in the comfort of our lounges.

AIRFRANCE.COM

TRENDING

DEALBOOK BOND ISSUANCES TOP 10 AFRICAN BONDS H1 2014 ISSUER

140

$25

$15

6.875%

24/6/24 Kenya

B+

MOROCCO (GOVT OF)

13/6 EUR 1,000

3.500%

19/6/24 Morocco

BBB-

100

OFFICE CHERIFIEN DES PHOSPHATES (OCP)

17/4 US$ 1,250

5.625%

25/4/24 Morocco

BBB-

ANGLO AMERICAN

3/4*

EUR 750

1.750%

3/4/18 Other (Africa) BBB

ANGLO AMERICAN

3/4*

EUR 750

3.250%

3/4/23 Other (Africa) BBB

AfDB

5/3 US$ 1,000

0.875%

15/5/17 Supranational AAA

ZAMBIA (GOVT OF)

8/4 US$ 1,000

8.500%

14/4/24 Zambia

FIRST QUANTUM MINERALS

8/5

US$ 850

7.250%

15/5/22 Other (Africa) B+

2009

09 10 10 11 11 12 12 13 13 2014

Rank Value ($ bn)

S&P RATING

MATURITY COUNTRY

16/6 US$ 1,500

COUPON

KENYA (GOVT OF)

$10

AMOUNT (MILLION)

120 $20

SUB-SAHARAN AFRICA TARGET M&A VOLUMES

DATE PRICED

# Deals

M&A THAT SINKING FEELING Mergers and Acquisitions in subSaharan Africa plunged by 46% in the first half of 2014, compared to the same period last year.

PUMA ENERGY

28/1

US$ 750

6.750%

1/2/21 Other (Africa) NR

3/4

US$ 650

6.250%

15/4/22 Other (Africa) BB-

11/4

US$ 500

6.250%

22/4/19 Nigeria

ANGLO AMERICAN

15/4*

US$ 500$

3m Libor +0.95%

15/4/16 Other (Africa) BBB

ANGLO AMERICAN

15/4*

US$ 500

4.125%

15/4/21 Other (Africa) BBB

KENYA (GOVT OF)

16/6

US$ 500

5.875%

24/6/19 Kenya

AfDB

28/1

GB£ 250

1.125% 15/12/16 Supranational AAA

TULLOW OIL ZENITH BANK

CHINA GHANA MISSES OUT ON LOAN PACKAGE It never rains but it pours. After announcing that it could not agree to financing terms with the China Development Bank, the Ghanaian government cancelled a planned $1.5bn tranche of a $3bn deal in July. The two sides first agreed to the loan framework in 2011, and the first $1.5bn is for the construction of a gas plant in the Western Region that has been delayed due to payment and other problems. Finance minister Seth Terkper said the first half of the loan will be disbursed in its entirety. The remaining money was due to finance other infrastructure projects. The Ghana Ports and Harbours Authority, which started works to expand the Takoradi port in anticipation of the second tranche, says the financing cancellation will not scupper the project. The authority explains that it has recourse to other sources of financing that will allow it to complete the port project, which is being carried out by China Harbour Engineering Company. Once completed, the port will have a new oil and gas services terminal.

B+

BB-

B+

SOURCE: DEBTWIRE CEEMEA

160

* LISTING DATE

LOANS TOP 10 AFRICAN LOANS H1 2014 COMPANY

DATE PRICED

AMOUNT (US$ MILLION)

MATURITY

SECTOR

COUNTRY

Mining

Zambia

FIRST QUANTUM MINERALS

May

1 200

2019

May

1 800

2019

KENYA AIRWAYS

March

1 300

2026 Transport

OANDO ENERGY RESOURCES

31/1

350

2020

31/1

450

2019

AFRICAN EXPORTIMPORT BANK

20/3

467

2016

20/3

309

2016

TULLOW OIL

April

750

2017 Energy

LAKE TURKANA WIND POWER

24/3

601

2029

24/3

2029

May

500

2019 Transport

Other/South Africa

19/2

324

2021 Telecoms

Egypt

28/2

2016

28/2

205

2019

7/4

140

2017 Energy

TEXTAINER GROUP HOLDINGS EGYPTIAN COMPANY FOR MOBILE SERVICES (MOBINIL) FONDS D’ENTRETIEN ROUTIER CARACAL ENERGY

THE AFRIC A REPORT

●

Kenya

Energy

Nigeria

Financial Services

Supranational Other/Africa

Energy

Kenya

Transport

FINANCE SPECIAL

Cote d’Ivoire Chad

●

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SOURCE: DEBTWIRE CEEMEA

$30

SOURCE: THOMPSON REUTERS

TRENDING

at least 20m households and businesses in six countries. Just before the summit, US assistant secretary for Africa Linda Thomas-Greenfield sounded a cautious note to The Africa Report: “It’s not something that’s going to happen overnight … it’s not that we announce Power Africa and we turn the lights on tomorrow.” Thomas-Greenfield sketched out a run-up period: “the first part of it is building the institutional framework within the countries in Power Africa to encourage investment.”

STATE DEPARTMENT PHOTO

US-AFRICA SUMMIT

TEARING DOWN BARRIERS New finance from the United States, Asia and Europe may dramatically change Africa’s sprawling economic landscape after a season of summits and deal making

esource-rich countries are winning unprecedented levels of trade, loans and investment, but the lack of power and transport, and areas of worsening instability are holding back wider development. Combining those concerns with a push for business dominated the US-Africa Leaders Summit from 4-6 August in Washington DC, where officials had promised substantive discussions on education, health, democracy and security. Initially, there were to be no big numbers announced at the summit. In March after its Africa summit, the European Union announced a package of $39bn in grants for the period up to 2020. In June 2013, Japan said it would offer $32bn in aid and private investment, compared with the $20bn in government loans China promised in June 2012 and the $5bn in credit lines from India in May 2011. But as Washington’s three days of summitry proceeded – which brought together President Barack Obama, vice-president Joe Biden, Secretary of State John Kerry and other top officials with about 50 African leaders – there was

GROUNDBREAKING POTENTIAL Three days of summitry moved things on quickly. The new target is 30,000MW. The US also used its convening power to pull in $9bn from the African Development Bank, World Bank and the Swedish government, along with an array of government departments and investment funds in the US. General Electric and Westinghouse talked about the groundbreaking potential of Africa after the summit. “Let’s tear down the barriers that slow us down and get in the way of trade. Let’s build the infrastructure,” an enthused President Obama told the African leaders and US business people at the summit. Such enthusiasm for cooperation could move in improbable directions. In July, Chinese officials reiterated an invitation to their US counterparts to work together on the Inga Dam in the Democratic Republic of Congo (DRC), one of a sequence of projects on the Congo River that could provide almost half of Africa’s electric power needs - perhaps a tenfold boost to the Power Africa targets.

some fast footwork. Officials suddenly claimed that the summit had raised $37bn of new investment, mostly from the private sector. That included $12bn in deals from companies such as Coca Cola, General Electric and Marriott Hotels and investment funds such as Blackstone and Carlyle Group; $7bn of state-backed finance to promote US exports to Africa; $12bn of new pledges for the Power Africa programme; as The US is trying to meet Africa’s well as $4bn raised through demand for roads, railways Interaction, an alliance of voland power with practical plans untary aid groups. This means the US is tryIt is a serious offer, say bankers, being to meet Africa’s demand for roads, cause China wants to bring in US influrailways and power stations with cash ence to help ensure the project works and practical plans. That marks a shift out and pays off. Equally, the US may from the old ‘Washington consensus’ see it as a way to work with Beijing as of free market economics and liberal China’s financial power in developing democracy. Now there are fewer concountries outpaces that of the World ditions amid a push to finance power Bank and the International Monetary and transport projects that will underFund. The politics and the economics pin Africa’s growth and development. of a US-China power initiative in the A case in point is President Obama’s Power Africa initiative launched last year DRC may be tortuous but the numbers to add more than 10,000MW of electricould be transformative. ● city generation and provide energy for Patrick Smith in Washington DC THE AFRIC A REPORT

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INTERVIEW

Thomas Piketty Economist, France

FOREIGN INVESTMENT IS LIKE SLOW POISON The author of Capital in the Twenty-First Century has spurred an energetic debate about capitalism and inequality. Here, he talks to The Africa Report about democracy, markets and industrialisation

TAR: What lessons on inequality are there for Africa from Europe’s 20th century? THOMAS PIKETTY: It’s important to think ahead about the kind of institutions, in particular progressive taxation and welfare states, that we gradually want to develop in order to ensure that this growth that will come [in Africa] can be distributed in a balanced manner and we don’t get to the kind of extreme and excessive concentration of wealth and economic power that we had in Europe up until the First World War. In France in 1914, people didn’t want progressive taxation, even with a top rate of 2%. Then suddenly in 1920, the same political groups that refused the income tax with the 2% tax rate voted for an income tax with a top tax rate of 60%. This is largely due to the war-related shocks but also after the Bolshevik revolution in 1917. Many rich people in France and in the West thought, after all, maybe it’s better to have progressive taxation than to have expropriation. Do you need shocks? Won’t democracy do the trick? I believe in democracy and in democratic forces, so I’m certainly not saying that you need wars, violent shocks or revolu-

tions to make things happen. You can achieve a number of things through democracy, and I certainly believe in new forms of mass mobilisation using new information technologies to spread information. But sometimes the elites invent a kind of persuasion apparatus that can be quite powerful in order to avoid the consequences of universal suffrage and electoral democracy. Democracy can be captured, in particular the laws governing democracy itself and the financing of political parties. The financing of the media is important. In the US today there is certainly a big concern that rising inequality leads to rising inequality in political power and the capacity to influence the political process. What about in emerging economies, where a hot topic is democracy versus authoritarian states? I think the rise of democracy, the rise of a legitimate state and government, and trust in the government’s ability to control a significant part of the countries’ resources, raise tax revenue and spend it well – all these processes go together. It’s very difficult to talk about the rise of democracy or the rise in trust in an elected multiparty system without talking

PROFESSOR OF INEQUALITY 7 May 1971 Born in Clichy, Hauts-deSeine, France 1993 Earned a doctorate in economics from the Ecole des Hautes Etudes en Sciences Sociales

about the substance of what the government is delivering: if the school system is working and if the roads are being repaired. And so each country has its own very complicated political, cultural and social history of how people come to agree or come to disagree about what the government can do, and should the government exist with these kinds of boundaries or this kind of political community of people that you put together. I think what has been very harmful in Africa and across the world is the belief after the fall of the Berlin Wall that all we need is market competition and we don’t want strong government, in fact we need weak governments. I think this was a terrible mistake because if you want to have a well-functioning market institution, you also need strong governments that are able to pay

1993-1995 Worked as an assistant professor at MIT, the Massachusetts Institute of Technology 2006 Helped to establish the Ecole d’Economie de Paris 2014 Published Capital in the TwentyFirst Century in English

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VINCENT FOURNIER/JA

In the case of South Africa, we have some of the data and there’s evidence that in the dreams of the post-apartheid period, if anything the top income groups have taken a bigger share of income growth. To be honest, at least we have the data for South Africa. There are countries where maybe there’s been the same situation or one that is even worse, but we don’t see it.

their teachers, their judges, their policemen, their nurses well so that they do their jobs. There’s no way that with 10% of GDP in tax revenue or sometimes less in some African countries, you can talk about democracy or talk about exchange because the bottom line is that you don’t have money to pay your teachers or road builders [...] I think, in a way, we’ve been playing with Africa as a field experiment, with a very radical discourse against government, which of course we did not apply at home or at least not as radically.

poison. It can be useful as long as it doesn’t take proportions that are too large. When you have a significant part of your capital owned by foreign owners, it often leads to cycles of political tensions and big political cycles with groups either supporting the foreign owners, sometimes in a very unfair and

If you want to have a wellfunctioning market institution, you also need strong governments inequitable manner, and sometimes expropriating the foreign ownership in a way that is not so efficient. I think it’s important to realise that basically no country in history has become rich through foreign investment.

What about industrialisation? How difficult would that be given that, as you point out, 20% of African capital is held by foreigners. Does it complicate matters? Foreign investment is complicated – it’s like a drug or slow THE AFRIC A REPORT

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What about African countries that struggle with inequality? ●

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What about the view from another side of the debate? One of Margaret Thatcher’s ministers said that the only problem with unearned income is that there’s not enough of it. That’s why they’re going to broaden the base of home ownership and privatise state companies. To some extent I believe in broad ownership of capital, and I believe in private property, not only as the condition of economic efficiency but also as a condition for personal freedom. It’s just that I want to make sure that we’re indeed going to increase the spread of wealth, which is often heard in order to defend privatisation or other policies, but in fact that’s going to benefit only a small group of the population. Also, whatever the level of equitable property distribution that you achieve, I think it’s important to balance the rights of capital owners with the rights of the workers and the rights of other parties involved [...] In France, the success of German exporters and German corporations is making some people change their view on this debate. Workers have voting rights on the boards of German corporations even when they don’t have any stake in the capital. Apparently that is not preventing them from producing good cars. After the fall of the Berlin Wall some people thought that having a shareholder company with all power given to the shareholders is the only way to organise human activity, but this is crazy. This old debate, about what we used to call the mixed economy, has taken new forms today. In a way, it’s only beginning. ● Interview by Nicholas Norbrook

Banque des États de l’Afrique Centrale

Pillar of monetary cooperation and economic integration in Central Africa ince 1972 BEAC has been the central bank of the six countries in the Economic and Monetary Community of Central Africa (Communauté économique et monétaire de l’Afrique Centrale, CEMAC). There are few equivalents in the world; each country usually has its own central bank. BEAC circulates CEMAC banknotes and coins (the FCFA, the franc of monetary cooperation in Central Africa), carries out monetary policy, keeps the accounts of the member States’ exchequers and manages their exchange assets. BEAC also maintains very close ties with the Banking Commission of West African States (Commission bancaire des États de l’Afrique Centrale, COBAC), which is responsible for chartering and monitoring the sub-region’s banks and credit institutions.

> A solid organisation BEAC’s headquarters in Yaoundé, Cameroon works closely with national branches in each member State and with decentralised agencies, including one in Paris, France. BEAC maintains regular, efficient relations with key international partners such as the World Bank, International Monetary Fund (IMF) and Banque de France. Developing close ties with international and African financial institutions is one BEAC, Banque des États de l’Afrique Centrale BP 1917, Yaoundé, Cameroon Tel.: (+237) 22 23 40 30 - Fax: (+237) 22 23 34 68

of its priorities. This outside cooperation strengthens its expertise and activities at the service of integrating CEMAC into the global economy.

> Guarantor of monetary policy The central bank issues CEMAC’s currency and ensures its stability. Without prejudice to this objective, it supports the six member States’ overall economic policies. BEAC defines and carries out CEMAC monetary policy, implements its exchange policy, promotes financial stability, holds and manages the member States’ official exchange reserves and promotes and ensures the proper functioning of payment and settlement systems.

> A development player BEAC, a reliable partner devoted to serving CEMAC’s member States, economic players and peoples, is also involved in Central Africa’s economic development and integration. It plays an active part in promoting and strengthening capital markets to support economic development and integration in CEMAC better. To that end, BEAC oversees and facilitates the member States’ issuing of government securities and works to build a sound, healthy banking system.

Communiqué

>>> Defines and carries out CEMAC monetary policy >>> Issues the fiduciary currency >>> Implements CEMAC exchange policy >>> Manages member States’official exchange reserves >>> Oversees payment and settlement systems >>> Promotes financial stability BEAC maintains close bilateral ties with several of its African counterparts and actively participates in spreading the influence of the Association of Central African Banks (Association des Banques Centrales Africaines ABCA), of which it is hosting the 38th Ordinary Board of Governors Meeting in August 2014.

> At the service of economic integration in Central Africa Relying on its member States’ spirit of solidarity and discipline, BEAC is firmly committed to fostering the economic emergence of Central African States for the benefit of their peoples. BEAC’s ability to keep pace with an everchanging environment enables it to continue satisfying all the CEMAC member States’ economic and social development players. The trust that their peoples and that African and international companies put in the CFA franc, the currency it issues, attests to its monetary policy’s rigour and far-sightedness. BEAC’s efficiency, independence, authority and continuous modernisation and development efforts allow the institution to increasingly assert its leading role in Central Africa’s economic integration.

> 1972-2012: serving Central Africa for 40 forty years The monetary cooperation agreements

laying the groundwork for the Bank of Central

African States (Banque des États de l’Afrique centrale, BEAC) were signed in Brazzaville, Congo on 22 and 23 November 1972. BEAC issues the CFA

franc, the legal tender in all the countries of the Economic and Monetary Community of Central Africa (Communauté économique et monétaire de

l’Afrique Centrale, CEMAC) and guarantees its stability. It also backs the member States’ overall economic policies.

BEAC, which defines and implements

monetary and exchange policy, manages the member

States’ official exchange reserves, ensures the smooth functioning of payment systems and promotes financial stability, is essential for Central Africa’s economic

integration. It entered its 40th year of existence with the firm desire to play its role as a reliable partner

committed to serving the CEMAC’s member States, economic players and peoples more than ever.

www.beac.int

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AFRICAN GOVERNMENTS ARE CRUCIAL IN SOURCING DEVELOPMENT FINANCE FOR INFRASTRUCTURE PROJECTS

GAP Finding money for transformative investment has always been a struggle in Africa - but now banks and governments are joining forces to mobilise Africa’s own resources, and find long-term funds By Nicholas Norbrook

frica has development challenges that require immediate attention, like roads, housing and agriculture. Glossy brochures in the reception rooms of upmarket private equity funds in the United States (US) and Great Britain vaunt the upward trajectory of the continent, but these vital sectors do not attract many financiers from outside the continent, except for a few backing self-contained projects such as high-end apartments, plantation agriculture for export and toll roads.

Local banks, despite the recent progress and pauses (see page 82), often lack the asset bases to do the heavy lifting associated with infrastructure. They do not have the long-term funds needed to provide housing finance, and they do not trust farmers or utility companies to pay them back. This is changing, and banks in some countries are now large enough to tackle expensive projects. Wole Tinubu, chief executive of Nigeria’s Oando used local banks to finance about 50% of the $1.5bn purchase of ConocoPhillips’s ● ● ●

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FINANCE: MIND THE (FUNDING) GAP

HARNESSING THE POTENTIAL OF PENSION FUND CAPITAL GETTING PENSION FUNDS, foreign exchange reserves and other large pools of African capital into local economies is critical. Currently, much pension money is tied up in lowyielding but safe Western or African government bonds. “We felt to develop the sector, we needed domestic, long-term capital to match against long-term assets. Actually, if you look at most markets, that is how infrastructure has developed, allocating a portion of long-term savings against long-term assets,” says Olusola Lawson, regional director for West Africa at African Infrastructure Investment Managers (AIIM). He argues it is important to have this more ‘permanent’ capital, “as opposed to more fickle international capital.” AIIM plans to close the first of two funds next year, channelling $270m of Nigerian pension money into infrastructure projects. However, many pension fund managers told The Africa Report – off the record – that

JACOB SILBERBERG/PANOS-REA

MANY PENSION FUNDS INVEST IN LOW-YIELD, SAFE STATE BONDS RATHER THAN INFRASTRUCTURE AND FARMING PROJECTS

fear of political interference is what keeps them from investing in such schemes. Nevertheless, considering the scale of some pension funds - Nigeria’s pot totals $25bn this is a new and important trend. A new report suggests

that up to $29bn from pension funds across Africa could be invested in private equity firms that invest in African companies. Pension funds are taking their first steps in this direction. In Kenya, the

● ● ● Nigerian assets in July. Oando In the past, development banks used FCMB Capital Markets, a local inprovided solutions to this mismatch by vestment bank, as lead arranger. “The subsidising interest rates. Many African Nigerian banking sector has come of age. governments set them up in the 1960s and 1970s. With crony capitalThese deals are not for foreign companies only,” Tinubu Morocco is channeling ism, corruption and poor risk management, many went tells The Africa Report. $2.5bn in Gulf funds But even the optimists to boost its tourism sector bankrupt. In the years of structural adjustment that admit that change is slow. followed, they did not fit the A large part of the problem is a mismatch between the new mantra of deregulashort-term funding availtion and liberalisation able and the long-term coming from Washingfunding needs. “So there ton. “It was not that they is a case for building up were ‘badly governed’, it was that they were ‘bad’. domestic capabilities for And so many of them dislong-term financing,” says appeared,” says Kaberuka. Donald Kaberuka, president SOURCE: REUTERS of the African Development Bank, African governments and who – like many in their final year in bankers are indeed still hard at work on this problem of sourcing development office – is occasionally breaking ranks capital: from using finance to de-risk with orthodoxy.

$2.5bn

industry has agreed to put $4m into a private equity fund that invests in regional infrastructure. Meanwhile, South Africa’s pension fund manager, the Public Investment Corporation, announced in 2012 that it was willing to invest up to $3.8bn with private equity companies. ● N. N.

lending to priority sectors, to drawing Africa’s savings pools into infrastructure projects and giving preferential access to finance for exporters. This trend is helping the continent to mobilise its own resources – Africa investing in Africa – and also creating the conditions to attract global capital. Government and its affiliated institutions are critical in this struggle to extend the tenor of lending. Before the Great Depression of the 1930s in the US, the private sector ran housing finance. Loans with a duration of less than 10 years were standard, as was a significant downpayment of around half the price of the house – something that African mortgage buyers are familiar with (see page 79). In response to the depression and over subsequent decades, the US government created various entities that de-risked

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DE-RISKING IS DE RIGUEUR Morocco has had a head start in this field. For Ismaïl Douiri, co-chief executive of Attijariwafa Bank, the country’s success in mortgage finance comes from two sources. The first is the ‘maturity transformation’, whereby retail deposits – which are by their nature short-term funds – are changed into mortgage and project finance by the work of the central bank, as in many developed countries. “Source number two is that Morocco – probably even before independence – developed a very efficient asset-gathering capability, with pension funds, with insurance companies and more recently, in the 1990s, with mutual funds,” says Douiri. The use of government balance sheets to de-risk sectors has been taken up in Nigeria’s agriculture sector, too. The man to bring the idea to Abuja is Akinwumi Adesina (TAR 62, July 2014). For several years prior to his appointment as agriculture minister, Adesina had been creating risk-sharing schemes to convince bankers to lend to companies in the agriculture sector. While working with the Alliance for a Green Revolution in Africa, Adesina and partners at other institutions worked with Standard Bank on a programme to lend $100m to farmers and agribusinesses in Ghana, Mozambique, Uganda and Tanzania. “That was at the time the largest facility for lending to small-holder farmers over the continent,” recalls Adesina. Taking this idea to Nigeria was the logical next step, and Nigeria’s central bank asked Adesina to run a series of workshops on agricultural insurance before he became minister in 2011. The result of that cooperation was the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), a $350m scheme to pull $3.5bn of ● ● ● THE AFRIC A REPORT

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the sector for lenders and helped to free up money for mortgage finance. The net effect for the US economy was transformative, and Nigeria’s finance minister Ngozi Okonjo-Iweala knows it – hence her championing of the new Nigerian Mortgage Refinancing Company (NMRC). “The contribution of mortgage financing in Nigeria’s GDP [gross domestic product] is close to a negligible 1% of GDP, compared to 77% in the US, 80% in the UK, 32% in Malaysia and 50% in Hong Kong,” said Okonjo-Iweala at the NMRC’s launch in January.

While enabling our clients’ ambitions, we were recognised as Best Investment Bank and Best M&A House in Africa.

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AFRICA’S FINANCING FOR AFRICAN DEVELOPMENT* in US$ 0

100

200

300

400

500

600

700

800

900

African Sources

Remittances $64 billion1(2013) Sovereign Wealth Funds $157 billion2 Mineral Earnings $168 billion3 Government Tax Revenue $520 billion4 (2011)

External Sources

Market Capitalisation $1.2 trillion5 (2007)

Foreign Direct Investment $50 billion6(2012) $101 billion (US$)

Official Development Assistance $51 billion7(2011)

Potential Sources

Securisation of Future Receivables & Diaspora Bond $20 billion8 Illicit Financial Flows $50-60 billion9 Debt Relief $114 billion10

* 1&4 2 3&5

Approx. $189 billion (US$)

Figures from different sources and years as indicated in the footnotes African Economic Outlook-2013 Calculation based on SWF Institute - 2013 NEPAD/UNECA - 2013

6 7 8 9 10

UNCTAD - 2013 African Economic Outlook - 2013 AfDB - 2010 UNECA/AU - 2014 ONE Campaign- 2014

INSTITUTIONAL INVESTORS WELCOME WHEN IT COMES to the great global migrations of capital, Africa sits on the sidelines. Apart from a few large resource deals, it is hard to tap institutional investors – including pension, mutual and hedge funds – because these investment behemoths need large enough projects to get economies of scale. Morocco’s Wessal Capital attempts to sidestep this by lowering transaction costs such as due diligence and creating local legal structures and by providing big-ticket projects. Wessal has brought in Aabar Investments from the United Arab

Emirates, the Kuwait Investment Authority, Qatar Holding, the Saudi Public Investment Fund and the Fonds Marocain de Développement Touristique (FMDT) into a $2.5bn co-investment vehicle, the continent’s largest joint sovereign wealth fund. “It creates a platform for asset management that really puts Morocco on the map for institutional investors,” says Tarik Senhaji, an investment banker and CEO of the FMDT, who represents the Moroccan government on the board of Wessal Capital. The first projects in the pipeline are an overhaul of the Casablanca port area

for €534m ($704m) and the Bouregreg Valley commercial and residential real estate development project in Rabat, which is set to cost €774m. How will investors make their money? Property. “After the Guggenheim was built in Bilbao [in Spain], the price of residential property went up 500% in five years, and tourist arrivals went up sixfold,” says Senhaji. Wessal also fits Morocco’s aim to weave together public and private initiatives. Drawing heavyweight tourism investors de-risks the country for others, wooing funds not just for Morocco but for the rest of Africa. ● N. N.

● ● ● financing into agriculture. That also required the central bank to reeducate bankers about the sector. NIRSAL is working. While banks were lending less than 0.7% of their total portfolios to the agriculture sector in 2011 when the scheme started, that figure is expected to be 7.5% in 2014. “And in the last two years, myself and the [then] central bank governor [Lamido Sanusi] called all the bank managing directors to a meeting and asked them: ‘How much money have you lost?’ – Consistently bank after bank [said] zero percent!” says Adesina. And a similar de-risking has taken place in infrastructure, too. Nigeria’s power privatisation in early 2013 was successful because of World Bank partial risk guarantees, which reassured the private sector consortiums that took over Nigeria’s power stations that their gas supplies will be maintained (see page 40). Local banks were also involved in the deals, and these projects are helping to bulk up and give experience to Nigeria’s infrastructure finance sector.

HELPING HAND FOR SMES These are examples of using interventions from governments and international financial institutions to fix market failures – in these cases, the lack of banks available or willing to lend to electricity, housing or agriculture projects. Another area where banks are chary to commit funds is small and medium-sized enterprises (SMEs). Perhaps surprisingly, given its historic preference for focusing on state failure rather than market failure, the World Bank is in discussion with the Nigerian government to set up a development bank for SMEs. This new development bank is set to be run on market principles, with strong governance along lines similar to Kaberuka’s suggestions (see page 24). At its heart is the subsidising of the interest rate: a 50-50 risk-sharing mechanism between the wholesaling development bank and the commercial banks that will originate the loans. This should keep them responsive to the dangers inherent in lending to small businesses. “I’m not sure you can call it a subsidy,” says Arnaud Dornel, a lead finance sector specialist at the World Bank. “We will cover you for half of your risk. There is a price attached to that. It is not free.” This ‘mar- ● ● ●

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ket discipline’ is important, as it points to a way development bankers can avoid the corruption associated with the field, where politicians seek to funnel funds to favoured businesses or to their pockets. Some governments are looking to develop sectors in a hurry. Ethiopia’s, for example, takes the flow of cash from its telecoms company and invests it in hydroelectric dams. It also channels money to priority sectors such as export manufacturing, through state ownership of the Commercial Bank of Ethiopia. The Ethiopia country director of the World Bank, Guang Chen, says that Japan and South Korea have done similar things. He warns, however: “To do this, you need a very strong bureaucracy.” While Ethiopia has made strides on boosting education levels, the skills base in government is still a challenge. ●●●

PENSION POT OF GOLD Public-private partnerships (PPPs) are a way to combine state power and market muscle with less risk. Nonetheless, PPPs have not had a great track record in Africa, here again partly due to governments’ skill sets. “PPPs are very expensive and long,” says Emile Du Toit, who runs an infrastructure fund at Harith General Partners, a private equity firm. “You need high risk-capital at the beginning, and that needs lot of skills, not only on the private-sector side but also expertise on the public-sector side, which in a lot of African countries is not really there yet.” He cites Kenya and South Africa as two countries that are leading the way. Meanwhile, the market is also catching up with the long-term financing challenges that the continent faces. This is most notable in the pension fund industry (see page 48). As a sign of the renewed global interest, there are investors who are not just about the quick buck but are willing to invest over longer time frames. Stuart Bradley, senior partner at private equity fund Phatisa, says: “Yes, we do want to make money, but it’s about doing it with a very keen eye on the development impact we are making with those investments.” Phatisa has raised $246m for an agribusiness fund and also invests in affordable housing. “We are not looking to make Facebook-style money or 150% IRR [internal rate of return]. We are quite happy making 2-2.5 times our money on our fund,” Bradley explains. ●

INTERVIEW

Donald Kaberuka

ERIC LARRAYADIEU FOR JA

President, African Development Bank

RUNNING A DEVELOPMENT BANK NEEDS POLITICAL WILL banks need money to spend, and TAR: You have spoken for the need African countries don’t have much. to help African businesses to access You say that governments don’t have long-term finance, but the much money, but there are pools of development banks that once savings on our continent that are now provided it were closed down during the 1980s because of corruption and invested in low-yielding instruments, sometimes even outside Africa. I would political loans. What is the solution? rather see those savings invested DONALD KABERUKA: I believe we can now have the second generation in local development banks for a good return for them. of development banks. This generation must have certain characteristics. When the regional development First, they must stick to long-term banks were set up 50 years ago financing of viable projects, especially – in Asia and Africa – they took their transformational projects. Second, they must be run on private-sector intellectual cue from the Bretton principles. The governance and business Woods institutions. How important for you has it been to build up the models must resemble those of ‘brain’ of the African Development the private sector. Third, they should Bank (AfDB)? be market oriented, there should not be Very important, and it has been quite the suppression of the financial sector – deliberate. When I was a young boy, so if the charge of the loan is 8% and the government wishes to subsidise the development paradigm was the ‘resource gap’. By the time I was those loans, the government should put at university, the new paradigm was that on its own balance sheet, not that to let the free markets work, [with] the of the development bank. famous Berg report. Then, since the Here, I am somewhere between free markets have shown their limits, a developmental state, requiring a developmental bank but which is run on privateThere is no model ready-made sector principles. And if that we can go and copy. We you think that is surprising need to think clearly ourselves. coming from me, remember Singapore Airlines. It is a we have turned to ‘capacity building’. state-owned airline. Ethiopian Airlines When that was deemed to is a state-owned airline. They are run like private-sector businesses, and they be incomplete, now it is all about ‘governance’. The reality is that work very well. it is about all those things – it’s not one or the other. All the G20 countries How do you avoid the crony capitalism problems that might bring got to the top table by combining all those things in different ways. I thought down such a bank? it was very important that the AfDB says If there is the political will to have to its African clients, “There is no model a development bank run on private-sector lines, you can put governance structures in ready-made that we can go and place: credit committees, risk management purchase and copy.” We need to think committees, boards which are selected clearly ourselves, look at every country, every region, their history, their carefully, boards which are full of not only resources and figure out how to develop. government people but also from the We work closely with our colleagues private sector. It’s not very complicated. at the international financial institutions, but we bring a different perspective. ● What about the mobilisation of Interview by Nicholas Norbrook resources? African development THE AFRIC A REPORT

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Tell us what you think of The Africa Report and you could win a 1-year digital subscription to the magazine To complete this survey online, please go to: http://www.theafricareport.com/survey NIGERIA The government’s business scorecard

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SOUTH AFRICA Three divorces and an election

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COTE D’IVOIRE Economic phoenix rises from the ashes

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The trade challenge With new rules and new markets, African companies fight for a bigger stake in the continent’s resource bonanza

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HISTORY | PEOPLE | POLITICS | ECONOMY | CULTURE

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CONSTRUCTION Lafarge and Dangote battle for dominance

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Aliko Dangote, CEO Dangote Group, Eleni Gabre-Madhin, CEO eleni LLC and Ivan Glasenberg, CEO Glencore Xstrata

u Aliko Dangote

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PEOPLE

(L-R) HAFID EL FASSY, SIMON DENNY AND JOSHUA SIAW, THREE PEOPLE SHAPING AFRICA’S FINANCIAL FUTURE

FACES OF FINANCE Backed by a new generation of bankers, Africa’s financial sector is fuelling the continent’s exponential growth. Foreign investment continues to flow to African projects, but more than ever the focus is shifting, with the continent generating homegrown solutions to its challenges and shaping its own financial future

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By Jana Marais, Nadia Rabaa and Billie Adwoa McTernan

ehind the scenes at African banks, law firms and companies, a quiet revolution is underway. The architects of this phenomenon are a vanguard of finance professionals seeking to push the continent’s rapid development and to channel the resources crucial to fund Africa’s expansion. It includes Simon Denny, one of South Africa’s chief mergers and acquisitions experts, and Hafid El Fassy, a Moroccan banker battling to strengthen the ethical dimension

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of the financial sphere. Ghana’s Joshua Siaw, too, is a rising star and at only 30 is heading the Africa division at a leading law firm. There are thousands of such players across the continent, and these new faces offinancehaveseveralthingsincommon, in addition to their vast business experience. They each have an international perspective and the ambition to shape a new self-sustaining Africa providing sophisticated financial solutions to build the continent of tomorrow. ●

PEOPLE

Simon Denny South Africa's M&A star Having advised on some of South Africa’s most highprofile deals, Denny predicts increased cross-border transactions with South Africa and eastern Europe IT’S BEEN A BUSY YEAR SO FAR FOR SIMON DENNY. One of the rising stars in the merciless world of mergers and acquisitions (M&A), he has worked on some of the biggest and most high-profile deals in South Africa since joining Deutsche Bank in 2008. Most recently, Denny advised South African leisure and gaming group Tsogo Sun when brewer SABMiller sold its 40% stake in the group in July for R10.6bn ($1bn). He also worked with financial services group Alexander Forbes on the capital restructuring and exit of private equity shareholders including Actis Capital, and advised pharmaceutical group Adcock Ingram on offers from CFR Pharmaceuticals and Bidvest. Bidvest ended up victorious in the hostile battle for Adcock, after Adcock and CFR admitted in February that it would be impossible to receive 75% shareholder approval for the Chilean group’s R12.8bn buyout offer. A chartered accountant by training with a bachelor’s degree in law, Denny spent a five-year stint in acquisition finance at Standard Bank before joining the German bank. His work for Deutsche Bank has included advising Massmart Holdings on the acquisition of a 51% stake by Walmart, and Telkom Group on the strategic minority offer by South Korea’s KT Corporation, which was eventually withdrawn after the South African government – a major shareholder in Telkom – vetoed the transaction.

The R16.5bn Walmart-Massmart deal, which was finalised in 2012 after a failed government attempt to have it blocked by the Competition Tribunal, was a career highlight for Denny. “To have had the opportunity to work on such a highprofile, cross-border transaction, introducing one of the world’s largest retailers into a strategic partnership with one of the leading South African retail companies was, from a career perspective, a great experience,” he says.

As director in the investment banking, coverage and advisory team in Johannesburg, Denny is responsible for strategic advisory (debt and equity) and cross-product coverage. Deutsche Bank’s track record in M&A – it was recognised as the DealMaker of the Decade in 2009 – and good client relationships help to convince prospective clients. “At Deutsche Bank, we focus on knowing our clients and understanding their priorities. We have developed trusted relationships over many years. Clients appreciate having bankers on the ground that know and understand the local environment, as well as the international

Big deals, high stakes PRIVATE EQUITY In June, the world’s second-largest private equity fund, KKR, bought an estimated $200m stake in Netherlands-based flower producer Afriflora, which operates in Ethiopia.

OIL & GAS Oil company Seplat made the largest IPO of a Nigerian firm in 2014 when it raised $540.5m in a joint listing in Lagos and London in April. This gave it a market capitalisation of $1.9bn.

TELECOMS In May, United Arab Emirates-based telecoms company Etisalat completed its cash purchase of a 53% stake in Maroc Telecom from French firm Vivendi for €4.2bn ($5.6bn).

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Jana Marais in Johannesburg

S. DE SAKUTIN/AFP

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Henry Kofi Wampah

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Under pressure from a weakening currency and rising inflation, the governor of the Bank of Ghana denied reports that he resigned in July. He called on the finance ministry to raise revenue and “rationalise expenditures”.

T. HADEBE/AP/SIPA

Sola David-Borha The Chief Executive of Nigeria’s Stanbic IBTC Holdings has had an excellent 2014, announcing a 50% rise in pre-tax profits for H1. The bank also unveiled its plans to raise up to 30bn naira (US$185m) in additional capital.

In July, shareholders in Egyptbased investment bank EFG Hermes rejected an offer from Beltone Financial and tycoon Naguib Sawiris to buy a 20% stake in the firm. Sawiris and Beltone refused to take a smaller stake.

ZENITH BANK PLC

Naguib Sawiris

The former Zenith Bank chief executive, dubbed the ‘the godfather of Nigerian banking’, was back at Zenith in July after being appointed chairman of the board of directors following Steve Omojafor’s resignation in June.

INVESTMENT Morocco’s tourism-focused PE fund Wessal Capital announced in June that it had launched talks with US investors. The $3.4bn fund has its sights set on fresh capital from institutional investors in Europe, the US and the Middle East. THE AFRIC A REPORT

N. DAOUD/WEF

Nicky Newton-King The Johannesburg Stock Exchange chief reported a 9% increase in the firm’s operating revenues in H1, as data showed the South African economy had narrowly avoided slipping into recession with 0.6% GDP growth in Q2.

S. ALAMBA/AP/SIPA

connectivity that Deutsche Bank brings,” Denny says. While confidence generally remains weak, key developed market partners are recovering, which will be good for South Africa and M&A activity in general, Denny asserts. “South Africa remains the key strategic market on the continent given its developedworld infrastructure, banking system and corporate governance. Inbound investment interest will remain and be significantly bolstered if there is an economic turnaround.” In May, the World Bank downgraded South Africa’s growth forecast from 2.7% to 2%, saying tight monetary policy, “combined with labour strikes and weak electricity supply, will keep growth subdued”. China-to-Africa M&A look set to remain a mega trend, but there is also interest from other emerging markets such as Latin America and eastern Europe, Denny says. Kevin Latter, head of corporate finance for Deutsche Bank South Africa, said Denny has an excellent technical and commercial understanding when it comes to complex, cross-border transactions. “Not only does he have the IQ to lead on these highly complicated deals, Simon has the EQ when dealing with our clients on a personal level. He is client-centric in his approach, he is a team player and a true ambassador for Deutsche Bank,” Latter said. For Denny, there is little time to switch off. “Pressure and long hours will always be intertwined [in] an environment committed to excellence. Corporate advisory, especially at an international investment bank, is a 24/7 job. Enjoying what you do, support from your team, family and friends, are important to overall success.” ●

Patrick Chinamasa Weaker economic growth and troubled banks have complicated the task of Zimbabwe’s finance minister. In early July Chinamasa said the country’s $9.9bn debt overhang was stifling its ability to mobilise new financing.

Bad times

PEOPLE

HASSAN OUAZZANI FOR TAR

Hafid El Fassy The banking system has its Robin Hood Fed up with the excesses of banking culture, this Moroccan entrepreneur aims to show that ethical finance is viable HAFID EL FASSY, who can quote in the same sentence former Federal Reserve chief Alan Greenspan and the late king Hassan II, is not your average banker. At 47, the son of a Saint-Cyr trained cavalry officer knows what the military school motto “they study to vanquish” means. Discipline, assertiveness and precision have led him to an international career which began in France, took him to Wall Street as a trader and then brought him back to Morocco a decade ago to launch a green banking platform. It all started when he graduated from Paris Dauphine University’s financial engineering programme in 1991. “I saw an internship offer from a subsidiary of the Union Européenne de CIC. They were looking for someone to help manage the developing countries’ debt portfolio. I was not supposed to work in the front office, but this internship changed everything.” Two years later, El Fassy was hired by the Union des Banques Arabes et Françaises (60% of which is held by Arab central banks). After 10 years co-managing a half-billion-dollar portfolio, he became an expert in African and Arab debt, working

returned to Morocco wanting to make a difference. After different positions in local companies, he decided to create his own firm and, in 2009, Maghreb Green Banking opened its doors. His company only accepts projects that respect the 2003 Equator Principles that advocate ethical finance. “We worked with Maroc Export, for instance, to connect 50 Moroccan entrepreneurs to their Gulf counterparts. I was personally screening each and every company and if I found that one was not respectful of the values of green banking, I’d simply refuse to work with them,” he says. He has also worked with Casablanca Finance City to finalise details around French-speaking Bloomberg TV Africa. “It is complicated, as the finance sector in Africa is not really keen on giving up information and the whole point of business television is transparency,” he says. “One of the other challenges was to explain to Bloomberg that we had to adapt the content of the programmes as the economic activities in the region are nothing like those in the US: we would talk about small and medium-sized enterprises, women’s empowerment, infrastructure development, etc.” As he likes to multitask, El Fassy is also working with the European Bank for Reconstruction and Development to install their Southern Eastern Mediterranean Sustainable Energy Financing Facility credit line, to help develop investment in green energy equipment in Morocco and Jordan. He also found himself a new lobby: social finance, to focus on stimulating positive

closely with the Club de Paris and its British counterpart, the Club de Londres. “At the time these assets were so shady they were called ‘exotic’ or even ‘illiquid’ – it was a different era.” In 2000 one of his clients, International Asset Transactions, an investment fund focused on sub-Saharan assets, offered him a position in New York. One of his tasks was to create an e-marketplace for the assets to reduce the bid-offer spread. He also “I was disgusted by what I was had to work with credit witnessing: colleagues convincing derivatives, with his company clients to buy just to get bonuses” managing $800m to secure in bond strips worldwide. But he became wary of banking culture. social and environmental returns for “I ended up being disgusted by what investors and the wider world. He I was witnessing: bosses asking their co-organised and moderated the first employees to hide things when making conference in Casablanca last year a presentation for investors, colleagues organised by local think tank Conseil convincing clients to buy assets du Développement et de la Solidarité, they don’t need at a price they can’t with Social Finance UK as a guest star. afford just to get their bonuses,” he said. Described by his business partners El Fassy was convinced that as an idealist, perfectionist and the solution lay in a more responsible workaholic, El Fassy believes that banking system. “The current situation making business is not incompatible is the direct result of my profession with improving people’s lives. losing sight of its essence: financing In a nutshell, a progressive banker. ● Nadia Rabaa the economy,” he says. In 2004, he THE AFRIC A REPORT

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Joshua Siaw Legal eagle with a bird’s-eye view

Appointments

The youthful Africa director of an international law firm has made his diaspora experience an asset in professional life

REINET

White & Case in 2010. He was appointed director of the Africa practice when he was only 28. Siaw says he’s in a niche position, able to understand the workings of both an international law firm and the culture in Africa: “I have lived and worked in Europe, the US and Africa and this has helped me in understanding the requirements of the international investment community as well as how business is done on the ground,” he says. White & Case has advised on over 90% of the sovereign bonds issued from the continent – excluding South Africa – over the past few years. These include acting for the Rwandan government on its debut $400m bond issue, and for Barclays and Citigroup in the $1bn Ghana bond. In February, Siaw was recognised as a Young Business Leader in Africa by the AU Commission and the Olusegun Obasanjo Foundation at the AU summit in Ethiopia. For him there is no time like the present to be working in Africa: “I feel privileged to be able to play a role in the growth and development of a continent that has become one of the most exciting and fastestgrowing economies in the world.” ●

Wilhelm Van Zyl

SCHLUMBERGER

The former deputy head of South Africa’s third-largest life insurer, MMI Holdings, will take over as chief executive of Reinet Investments Manager SA and Reinet Fund Manager SA after the retirement of Alan Grieve in December 2014.

Hezekiah Sola Oyinlola The Schlumberger Group’s chairman for Africa became a non-executive director of Nigeria’s GTBank in June. He replaced Stella Okoli, who retired due to the bank’s policy of having no directors aged over 70.

Billie Adwoa McTernan

ECOBANK

JOSHUA SIAW IS A SAVVY LAWYER. At 30 years old he has already carved himself an enviable international career, working with some of the world’s largest law firms. In his current position as director of the Africa practice at White & Case, based in Johannesburg, Siaw rubs shoulders with some of the continent’s most powerful heads of state and businesspeople. His reach now spreads across the continent, but his journey was not an easy one. Growing up as the youngest of three children to Ghanaian parents in London, Siaw learnt the value of hard work from an early age. At his tough inner-city school, he hit the books hard. “At one point I was studying 15 hours a day and I realised that the mind is like a muscle – the more you use it the more it expands.” Having earned straight A’s in his A-levels, Siaw went to King’s College London, followed by a year doing legal practice. After that his career catapulted: a stint at one of the US’s largest firms, Shearman & Sterling, saw him advise the Abu Dhabi investors that bought Manchester City Football Club in 2008. He worked at Gide Loyrette Nouel, a French law firm with a stronghold in francophone Africa, before joining

Mohammed Nyaoga

ANDY LANE

In July, Ecobank named Nyaoga as the new chairman of the board of directors of its Kenyan operations. Nyaoga is also a managing partner of Nairobi-headquartered law firm Mohammed Muigai Advocates.

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PEOPLE

INTERVIEW

Nhlanhla Nene South Africa’s minister of finance

TOUGH TIMES NEED TOUGH SOLUTIONS Nene talks to The Africa Report about the need to create jobs, finance infrastructure and reduce the budget deficit, while outlining why a new development bank for the BRICS economies will benefit Africa most

n Nhlanhla Nene’s first parliamentaryoutingas financeministerinJuly, he spelt out what he sees as the grim truth. As he set out his ministry’s budget estimates, he warned of hard times coming:“Oureconomyisperformingbelowitspotential,andcertainly waybelowthelevelofgrowththatis required to deal with the country’s triplechallengesofunemployment, poverty and inequality.” Perhaps Nene’s message was intended as much for the international markets, which have been full of gloomy forecasts about South Africa’s economy, as for the members of parliament (MPs) sitting in front of him in Cape Town. Trying to reassure his core constituency in the benches of the legislature, Nene said that deficit cuts would not mean slashing health or education budgets: “The real value of our social spending will be maintained. But the fiscal limits will be far stronger and the need to ensure value for money andeffectiveallocationofresources

JULIAN GOLDSWAIN FOR TAR

evenmoreparamount.” Supporters fromthegoverningAfricanNational Congresscheeredhimonand,true to form, the newly installed MPs of the militant Economic Freedom Fighters warned of policies that wouldbetraythecountry’sworkers. No ingénu, Nene was sitting on the parliamentary benches eight years ago, chairing the finance committee when Trevor Manuel was finance minister. Then, Manuel warned of tough times, but higher commodity prices,

needed stern domestic remedies: “Tough times ahead require tough solutions. We are quite committed to doing that.” The priority areas are “reducing the cost of doing business and reducing the cost of living,” he added. TAMING PUBLIC DEBT Along with those cost reductions comes Nene’s determination to cut the budget deficit over the next three years. He wants to get the balance right: “The key among our priorities is to focus more on infrastructure investment. Our expenditure should be focusing on spending more where we get the most returns, both economically and socially. The growth in our expenditure is going to be quite moderate, and [we will] also keep our debt within sustainable levels.” Another big vulnerability – in terms of market perceptions – is debt. Nene told parliament that the government’s public debt was R525bn ($49bn) before the 20082009 financial crisis in the US. Since then, it has tripled ● ● ●

“We should be focusing on productivity in the public sector. [We need] a proper performance management system” rising investment and a stronger rand provided buffers against the economy’s structural problems. This time around, Nene is in the ministerial chair and those buffers needrebuilding.Thereismuchless talk about international economic pressures. After his parliamentary debut, Nene told The Africa Report that economic problems THE AFRIC A REPORT

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● ● ● and is forecast to hit R2trn “When people talk about our resolve to deal with the industrial within three years. Much of that borrowinghasbeenforcriticalproarea, where there has been labour jects such as boosting the generatunrest, it is in our interest to keep ing capacity of the state electricity calm and peace in that area,” said company. Lack of power has been Nene. “It is also in our interest holding back economic growth. to bridge the divide between the More important than those depoor and the rich, and deal with ficit and debt figures are the job economic issues of equality.” creation targets. The latest govYet Nene argues that fixing the ernment survey shows that uneconomy means taking hard deemployment has inFixing the economy means creased to about 25.5% with 5.2 million people taking hard state-sector unemployedofthe20.1 decisions, not just about wage million people in the rates, but about how it is run formal-sector labour force. The government wants to cut that jobless figure to cisions in the state sector, not just less than 15% within three years. about wage rates but about how it Businesspeopleandgovernment is run: “It is the productivity of the officials have often played a blame public sector that we should be fogame about jobs. A South African cusing on. Whatever we are paying consultantwhorequestedanonyminthepublicsectorcannotbeeasily ity says businesses should do more measured unless we have a proper about jobs: “There are some signs performancemanagementsystem.” of a new economic structure coming out of this. There are at least five WHAT THE CITIZENS GET million jobless, many of whom are Howevertechnocraticthatsounds, getting social wages, but some of Nene is signalling some important these are being used to set up small changes planned for the state secenterprisesandtheseneedpatrontor in the face of perennial protests age from mainstream business.” about service delivery. “As we enNene declines to join the blame gage with our public service, we game but strongly defends the also look at what it is that we as government on labour relations the state or the citizens get. We against critics who argue it should need to improve service delivery, have intervened more forcefully to the working conditions and the end a five-month strike by platliving conditions of our employinum workers this year. ees,” he explains.

It was only when it came to discussing his meeting just after the World Cup in Brazil with the other BRICS members states – Brazil, Russia, India and China – that Nene was decidedly upbeat. He says the governments should ratify the proposal for the BRICS development bank within six to 12 months. He points out that Africa will be the main beneficiary of the bank and that South Africa will host a regional bank office. “The regional office is going to deal with project preparation. Also, we’ll act as a conduit for investment into Africa. Actually, most of the investment is going to be coming to Africa because that’s where we haveaninfrastructuregap,” hesaid. And after South Africa was knocked down by Nigeria from its position as Africa’s largest economy this year, the BRICS bank accords what most regard as Africa’s most modern economy with a key role in the international system. “The bank presents us with an opportunity of pooling resources with the rest of the BRICS member countries,” said Nene. South Africa can thus help to bring in money to plug what Nene reckons is an annual shortfall of around $100bn in financing for infrastructure, marking at least one positive for the country in a difficult first year for the new minister. ●

NENE: FROM THE PICKET LINE TO THE FRONTBENCH 5 December 1958 Born in South Africa 1979 Got involved in student politics 1990 Helped to organise the country’s first strike in the financial sector 1994 Named chairman of the Ntunjambili Development Forum 1999 Elected to parliament on the ANC ticket 2005 Became head of parliament’s finance committee November 2008 Became deputy minister of finance in Kgalema Motlanthe’s government

Interview by Crystal Orderson in Cape Town and Patrick Smith

May 2014 Replaced Pravin Gordhan as finance minister

MARCO LONGARI/AFP

UNEMPLOYMENT REMAINS ONE OF THE GOVERNMENT’S KEY PROBLEMS WITH 25.5% OF SOUTH AFRICANS NOW JOBLESS THE AFRIC A REPORT

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POWER

LOCAL BANKS

Nigerian banks that survived the radical reforms of a decade ago are now reaping the benefits as they finance the country’s power revolution By Vincent Nwanma

or many, part of the thrill of seeing Nigeria’s power privatisation process inch closer to fruition is anticipating the implications for the country’s banks. When it comes to Africa’s infrastructure projects, foreign banks have too often done the heavy lifting that might otherwise build up the muscles of local banks for further lending. For Lagos-based banks now to be cut in on the deals is a sea-change for the industry. The seeds of this revolution were planted a decade ago. On 4 July 2004 the Central Bank of Nigeria, led by its new governor Charles Soludo, ordered banks to raise their minimum capital to N25bn ($154m), from just N1bn for existing banks and N2bn for new ones at that time. It gave them 18 months to meet the new requirements, and asked those unable to make it to allow themselves to be acquired or bought over by others. At the end of the exercise, on 31 December 2005, 25 banks emerged from 75, with 14 failing the test. Ten years later, the impact of that move is being felt in the Nigerian banking industry, as it’s beginning to flex its muscle by taking on bigger roles in the most challenging and critical sectors of the economy: power and oil and gas. The new central bank governor Godwin Emefiele, who took over from Lamido Sanusi this year, acknowledged this fact at the start of his tenure in June.

“The Nigerian financial system has undergone several years of critical reforms, designed to position it as Africa’s financial hub,’’ he said at his first media briefing in Abuja. “These reforms have produced a financial landscape characterised by large and strong banks, an efficient payments system and improved financial infrastructure.’’ The average capital adequacy ratio of the banking system – which measures

a bank’s ability to meet its obligation in relation to the risks it faces – stood at 16.7% at the end of March 2014, which was better than the global threshold of 10%, Emefiele said. The banks’ improving status showed in their 2013 results, which indicated continuing recovery after the 2008/9 crash. At Zenith Bank (#20) earnings rose 14% to N351.5bn, but profit after tax declined 5% to N95.3bn. For Guaranty Trust Bank

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PLUGGED IN Government began by unbundling the Power Holding Company of Nigeria, successor of the erstwhile National Electric Power Authority, into six generating companies (GenCos), 11 distribution companies (DisCos) and one transmission company. Last year, it sold the DisCos and the GenCos to consortia of investors, both local and foreign. That sale has provided local banks with an opportunity to raise their stake in the power sector. For a bank like Fidelity Bank (#34), a tier-two Nigerian lender, the privatisation of the power assets gave it an entry point to provide finance to the buyers, says John Obi, executive director in charge of corporate banking (see interview page 42).

(#21) earnings climbed 9% to N242.7bn, while profit after tax rose 4% to N90bn. Under pressure to rebuild its comatose power sector, the Nigerian government has embarked on an ambitious project tagged the Economic and Power Sector Reform Programme, which, in brief, involves handing over the assets of the sector to the private sector, with the government playing a regulatory role. It also involves an aggressive increase THE AFRIC A REPORT

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in both generation and distribution capacities to raise power output from about 4,000MW at present. For a country that in April 2014 became Africa’s biggest economy after rebasing its GDP, and as the continent’s most populous with at least 170 million people, the current power production levels are woefully inadequate to meet needs. So the government has set a target of 40,000MW of electricity by 2020.

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FUNDING NEW PLANTS In addition to the acquisition of the assets, banks are also funding the modernisation of existing equipment and installation of new material, including transformers and power lines, as well as the construction of gas plants needed to supply gas to the power plants. They are also financing the buyers’ investments to expand generation capacities at the old plants. These emerging opportunities are giving rise to complex financing structures that involve different classes of financiers, both local and foreign. Nigeria has abundant gas reserves, but Africa’s biggest oil producer has faced challenges on how to channel the gas to the power plants to generate electricity. New investors are stepping in to fill the gap. One such power plant is the AzuraEdo Independent Power Project, a 450MW gas turbine plant located in Edo State. Owned by Azura Power Holdings, the power plant and a gas plant to supply it feedstock will cost about $1bn, according to the company. The firm is co-owned by Amaya Capital and American Capital Energy & Infrastructure. Financing of the project involves $220m equity and $530m of debt from a consortium of local and ● ● ●

AFOLABI SOTUNDE/REUTERS

international financiers, Azura an e-mailed response to questions. “It said in a statement. Signing of key inis also anticipated that finance will be dustrycontractswascompletedon5May. raised from [development finance inOn that day, Azura also signed a gas stitutions] in other countries such as sales and purchase agreement with SeGermany, France and the US. A total of plat Petroleum Development Company. 14 banks and financial institutions from Seplat, which is listed on the Nigerian eight countries are expected to invest in Azura,’’ the company explained. Stock Exchange and the London Stock Construction is planned to start this Exchange, is investing $300m in new gas processing facilities at its Oben Gas summer, while the plant will take up to Plant. The plant is part of Seplat’s joint three years to build. “We are trying our hardest to accelerate this,’’ the company venture with the state-run Nigerian Petroleum Development Company that said. “But given the length of time it will supply the Azura-Edo plant with the takes to build such a big plant, it will not project’s fuel gas requirements. be until early 2017.’’ Azura has a target The UK’s Standard Chartered Bank plant capacity of 1,500MW, which the structured the financing, the bank said company says will be reached “within in a statement in May, which is coming the next five years.’’ from three different sources: commercial banks, developEmefiele plans to push banks ment finance institutions and further into the power sector the N300bn Nigerian debt facilwith funds at concessionary rates ity set up by the central bank, the Power and Aviation Intervention Fund. If the banks have shown increasing The foreign commercial banks are interest in the power sector, Emefiele, Standard Chartered, Rand Merchant the new helmsman at the central bank Bank from South Africa and Gerand, until his appointment, the chief many’s Siemens Bank. From the Niexecutive of Zenith Bank, one of the gerian debt facility, Nigeria’s First City country’s largest, will drive it even furMonument Bank has received credit ther during his tenure. The central bank will facilitate investapproval for nearly N25bn, according ment in key parts of the value chain by to the company. providing funds at concessionary rates to targeted investments in the power EUROPEANS CHIP IN sector, Emefiele said. “We will encourThe development finance institutions age investment in the gas-to-power inon this project are the International Finance Corporation of the World Bank frastructure to improve the reliability of Group, FMO from Holland, Swedfund supply of gas to the existing and new of Sweden and the UK’s CDC Group. power plants.’’ All the above institutions have reEmefiele says he plans to adopt a ceived credit approvals, Azura said in development finance model to central ●●●

LITTLE CAN COMPARE WITH THE THRILL OF THE PRESIDENTIAL POWER REFORM TRANSACTION SIGNING IN 2013

banking. This would seek to channel credit through direct intervention to selected sectors. In the oil and gas sector, Nigerian banks’ exposure is up to one-fifth of their loan portfolio, according to industry figures. This has been driven by the government’s local content law that requires 70% content in the sector, which presents opportunities for smallsized upstream and midstream oil and gas transactions. And their participation has progressed from a concentration on the downstream sector, characterised by short-term lending, to upstream activities, as their knowledge of the industry deepens. They are also funding the acquisition of oil assets being sold by international oil companies, as they divest from Nigeria or move further into the deep offshore. Emefiele seeks to strengthen the banks’ participation in the sector. He will support investments in small-scale refineries in order to cut importation of refined product, currently consuming 35% of Nigeria’s annual import bill. He will also look at ways the government could raise funds to pay for its share in the joint ventures with international oil companies, which it currently struggles to do. “We will explore how this can be done through international capital markets.’’ This suggests that the government could sell bonds on the international market for the purpose of raising funds to meet this obligation. ●

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AFRICAN EXPORT-IMPORT BANK BANQUE AFRICAINE D’IMPORT-EXPORT

The healthcare Africa deserves

Today, Africa has never been in a better shape. African countries’ economies are flourishing, with continental GDP topping $2 trillion and seven of the world’s top 10 fastest growing economies being African. Employment rates across the continent are soaring, enabling more Africans to lift themselves out of poverty than ever before. Despite this boom, however, the continent continues to be held back by inadequate healthcare services and facilities which prevent Africans from achieving their full potentials. Consequently, the African Export-Import Bank (Afreximbank), the foremost Pan-African multilateral institution dedicated to financing and promoting African trade, has executed a memorandum of understanding (MOU) with King’s College Hospital (KCH), London, one of Europe’s leading medical facilities, to utilise KCH’s specialist knowledge in hematological medicine and other ground breaking medical specialties as a first step towards building a like-for-like Medical Centre of Excellence in West Africa.

others give to theirs. In doing so, we must take advantage of the business opportunity this intervention presents,” continued Mr. Ekra. “We cannot export sick people and the jobs that go with these people and, above all, there is a need to begin to build the building blocks of the healthcare industry that reflects our culture and preferences.”

Afreximbank President Jean-Louis Ekra signs the memorandum of understanding between the Bank and Kings College Hospital.

The inadequate of Africa’s medical services and facilities has been further accentuated by the current challenges in using the existing health infrastructures to manage the ongoing Ebola virus epidemic gripping West Africa which is hampering efforts to control the deadly disease.

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This pioneering MOU is the latest initiative under Afreximbank’s Health and Medical Tourism Programme’s targeted at reducing the number of Africans forced to travel abroad for medical treatment by facilitating the establishment of new state-ofthe-art healthcare facilities across the continent. Speaking during the signing of the MOU in London, the President Jean-Louis Ekra of Afreximbank praised this crucial milestone in delivering on the Bank’s pledge to provide Africa with healthcare facilities its people deserve. “The healthcare situation requires urgent attention given the paucity of facilities across the continent and consequent high death rates sometimes for conditions that are easily treatable,” stated Mr. Ekra. “Although a few million Africans travel abroad, we estimate that for every one that travels there are about 20 with similar needs unable to, for various reasons including visa restrictions.” “About $5 billion are estimated to be spent each year as Africans are forced to fly to popular medical tourism destinations, such as India, Turkey, Europe and the US, for healthcare that could easily have been provided on the continent,” he went on. “For a continent which has to take its rightful place in the global scheme of things, this trend cannot be allowed to continue, we must act to give our people the same quality of life that

Afreximbank team listens to presentation during tour of KCH facilities in London

Since inception, the Bank, which is headquartered in Cairo, has approved over $30 billion in credits to African businesses, with about $3.5 billion disbursed in 2013 alone. The Bank has worked tirelessly to reshape and develop the continent by channeling much-needed funding into new projects and initiatives.

AFRICAN EXPORT-IMPORT BANK BANQUE AFRICAINE D’IMPORT-EXPORT 72 (B) El Maahad El Eshteraky Street, Heliopolis, Cairo 11341, Egypt Postal Address: P.O. Box 613, Heliopolis, Cairo 11757, Egypt

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Afreximbank President Jean-Louis Ekra shakes hands with Mr. Tim Smart, Chief Executive of Kings College Hospital.

With its pioneering partnership with KCH, Afreximbank is helping the continent take the key steps towards delivering the world-class health facilities that Africans deserve while enhancing service exports, promoting employment and conserving foreign exchange.

FINANCING GROWTH

INTERVIEW

John Obi Executive director of corporate banking, Fidelity Bank

POWER PROGRESS IS SUSTAINABLE Nigeria’s Fidelity Bank (#34 in our rankings) dedicates more than 26% of its loans to the power, oil and gas sectors combined. Having taken part in the privatisation of electricity distribution and generating companies, Obi is confident Nigerian power is on the road to recovery TAR: How is Fidelity Bank involved in the power and gas industry? JOHN OBI: At the national level, we have participated in the privatisation of the assets of the Power Holding Company of Nigeria (PHCN), the distribution and generating companies. We have funded some of the DisCos [distribution companies], such as Kano DisCo, Ikeja DisCo and Benin DisCo. For the generating companies, we are supporting the Egbin power plant in Lagos State, and of course the Transcorp power station at Ughelli in Delta State. 13% of our loan portfolio is dedicated to the power sector. How does that compare with the industry? Fidelity is one of the leading banks in terms of power projects. All the three projects we did with the Lagos State government, Fidelity did alone; there were no other banks involved. For the generating and distributing companies, we participated with other banks through syndication. Our belief and the stake we have in the power projects rank among the highest in the banking industry. We should be among the top three banks in terms of power project financing. So, should Nigerians look forward to the power problem being fixed soon?

FIDELITY BANK

Fixing the power sector will take some time to happen, but we have started in the right direction. The fact that those assets have now been put in private hands is a very bold step by the current administration. The next step is for the private sector to make sure that all those agreements, all the covenants they reached with the government, that they are able to keep them. And the government also has the responsibility to ensure that whatever commitment and obligation they have towards ensuring the success of the process, that they abide by them. Most of the DisCos that acquired the assets, for example, I know they are also working towards getting metering in place,

We are also beginning to have improvements in revenue. So I think it is a progress that is sustainable, and with the support of banks and the society at large, I believe that in the medium term we will be able to see a remarkable improvement in the power situation in this country. We are also involved in the oil and gas sector. Our involvement is both in the upstream and the downstream. Our exposure to the oil and gas sector is just about 13.5% of our loan portfolio. We are quite happy with what we are doing. Of course we know that oil and gas is the bedrock of this economy. What aspects of the oil and gas sector do you finance? We are involved in both the exploration and production in the upstream. I can give you an example of what we are doing in this area. Shell [Petroleum Development Company of Nigeria] has been involved in divestment of some of their assets in the Niger Delta, maybe because of community problems, and they are now moving offshore to work in the deep waters. So those assets are being sold, mostly to Nigerians. We are supporting them to be able to acquire those assets and their work on those assets.●

“The government has to shoulder responsibility to ensure things work well for the generating companies” for them to be able to support the project. And whatever else they need in order to succeed, they are all working towards that. The generating companies are also trying to raise generation, but that does not mean they don’t have challenges. Their problems include vandalism of gas pipelines for the supply of gas to these projects. This is a responsibility that the government has to shoulder to ensure that things work well. THE AFRIC A REPORT

Interview by Vincent Nwanmah in Lagos ●

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FINANCING GROWTH

INSURANCE

GLOBAL DOWNGRADING IS GOOD NEWS FOR AFRICA The vastly underinsured African markets – Ghana and Nigeria in particular – have become an urgent growth area for insurance companies suffering from the negative global outlook

he troubled global reinsurance sectormaybeheadingtolevelslast seen 13 years ago – before the fall of the US’s twin towers. Rating agencies Standard & Poor’s, Moody’s and Fitch have recently downgraded the sector’s outlook from stable to a grim negative. “The current soft market shows many of the traits of the late 1990s – an over-abundance of capital, double-digit annual price declines, a substantial rise in buyers’ bargaining power, and predictions of industry consolidation,” said Moody’s outlook report of 18 June. This puts Africa in a unique position. Its insurance sector remains a market in construction, with huge potential: it NIGERIA, WHERE ONLY ONE IN 10 PEOPLE HAS COVER, REPRESENTS A HUGE OPPORTUNITY FOR INSURANCE FIRMS

ies in East Africa and West Africa as key, partly because they are at the forefront of supporting-technology drivers, such as mobile-supported insurance. While practitioners are confident that education about the use and benefits of insurance will allow them to reap the rewards over time, there remain many hurdles. Blum Khan, the CEO of South African insurer Metropolitan Health Group, said insurers offering retail products in Africa need to ensure robust premium collection

is estimated that nine in 10 Nigerians do not have any form of insurance cover, according to NOIPolls. In Ghana, the insurance market is expanding at 30%, according to the country’s commissioner of insurance, Lydia Lariba Bawa. International insurers are well aware of this trend. UK-based insurance giant Prudential, whose Ivorian CEO TidjaneThiamworkedinRobert Prudential’s entry into Africa is Guei’sgovernmentinthe1990s, significant, even if Africa’s share has started selling insurance in of the industry is just 0.2% Ghana, a first for the company. It has acquired Express Life, an insurer which focuses on people earnmechanisms are in place to drive their businesses’ growth. ing less than $2.50 a day. Prudential’s entry into the Africa is significant, even if The Nigerian market remains a gem. the continent represents just 0.2% of the The South African insurer Liberty Holdglobal insurance industry total. ings is mulling over the most effective The sector is slowly coming to the boil. way to enter. In general, the sector repSouth African insurers view opportunitresents a real opportunity for fast ● ● ●

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growth, partly because foreign investors are allowed to purchase 100% of local companies, avoiding the costs associated with setting up greenfield operations. The reinsurer Swiss Re believes the Nigerian insurancemarket,whichwasworth$1.6bn in 2012, will grow to $6.5bn by 2025. A recent report by Fitch predicts that consolidation in the Nigerian market will be the next big trend. That might well be driven by market leader Leadway Group. Its asset base hit the N100bn ($617m) mark at the end of 2013, a 47 % growth on the previous year.

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BRIDGING CONTINENTS In December 2013 Sanlam Emerging Markets (SEM) acquired a 49% stake in NICO Holdings’ general insurance businesses in Malawi, Zambia, Uganda and Tanzania. They are having to deal with the recent trend of healthcare providers entering the health insurance market. SEM has recently concluded a number of acquisitions, including theSorasGroupofRwandaandMCIS Insurance Berhad of Malaysia. SEM has also recently acquired a stake in the leading global micro-insurance specialists, MicroEnsure Holdings, which is based in the UK and has a footprint across Africa and India, serving more than 10 million enrolled clients. Regulatorshavebeendrivingsome of the changes. In Uganda, the insurance act of 2011, which took effect in December 2013, forced insurance companies to split their life and nonlife products into two separate companies. In 2005 and 2007 Nigerian regulators helped consolidate the sector by demanding new capital requirements for insurers, bringing the number of insurers down from 97 to 49. The Nigerian regulator NAICOM has also has pushed its Market Development and Restructuring Initiative, which has focused on re-orienting Nigerian insurers towards the retail market. This is happening in Africa’s francophone markets, too. This is partly down to the growth in selling of insurance through banks – known as ‘bancassurance’ – with accords mushrooming between insurers and banks in places like Cote d’Ivoire. ● Thekiso Anthony Lefifi

AFRICA RE MOVES ITS FOCUS BACK TO ASIA The Nigeria-based reinsurer is winning in a game of high stakes, and plans a new strategy in the face of South African under-performance

frican Reinsurance Corporation (Africa Re) is planning to bulk up its business in China and the rest of the Asian markets following years of scaling back in those regions. In his first exclusive interview after the reinsurance company’s 36th annual general meeting held in Cairo, the group’s boss, Corneille Karekezi, said a new strategy to increase its exposure in Asia is about to be implemented. The Nigeria-based group had scaled back from Asia because it wants to focus on the African continent. Three years ago, Africa Re’s share of business in China stood at 10%; last year it only recorded 7.7%. However, despite the drop China remained one of its best-performing regions in the emerging markets. Developing Asia recorded a 6.5% increase in performance while sub-

CORNEILLE KAREKEZI, GROUP CEO OF AFRICA RE, IS SITTING ON AN A- RATING AND $2.8bn IN ASSETS

In the past five years, Africa Re has been the only company on the continent not to lose money. It holds $2.8bn in assets, and invested and deposited $647.3m in various projects and banks in Africa. It also declared more than $30.2bn in dividends. Still, Africa Re’s South African subsidiary has under-performed due to the weakenedeconomy.Someanalysts said they expected Africa With numerous companies Re to scale down South African knocking on Africa Re’s doors the operations, but Karekezi said company will have to choose well that move is not on the cards. He instead said the company plans to “restructure its [South African Saharan Africa and India added 5.1% operations] portfolio by balancing it.” and 4.4%, respectively. “Growing is easy – anyone can grow, Africa Re South Africa, which was especially if you have a name like Africa visibly absent at the annual meeting, Re, with a [credit] rating and a positcontributes about a third of the group’s profit. The region has been hit by a wave ive outlook,” said Karekezi. The rating of labour strikes, capital flow volatility, a agency A.M. Best recently revised its drop in exports and expanding current outlook to positive from stable and affirmed the financial strength rating of A-. account deficit, all of which resulted in the rand nosediving by 23% against the RISKY BUSINESS US dollar in 2013. Partly due to its prudential performance, African currency depreciations, such which did not go unnoticed, Karekezi as this and that of Egypt, are among the said, numerous companies have come issues that might give Karekezi cause knocking on Africa Re’s doors seeking for concern, but he keeps a steady hand reinsurance. This means the company on the tiller. Had the exchange rates can pick and choose who it is goes into remained stable in 2013, the premium business with. The tricky part, however, growth for the group would have been is to make certain it is not hit by high 11.62%. However, Karekezi denied the claims to a point that it cannot survive. group would be investigating currency “Insurance is a risky business, and hedging products to mitigate the losses risk means you can lose,” said Karekezi. caused by such depreciation. ● T.A.L. THE AFRIC A REPORT

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Connecting banks to the under-served and potentially lucrative SME market in Africa Banks have known for many years the potential of reaching under-banked populations. Moving beyond the MPESA generation – an innovation created in Kenya that converts mobile phones into a banking tool – banks are increasingly looking at a more sophisticated market, Small and Medium Sized companies (SMEs).

loans. The product works for loans, bonds, bank guarantees, letters of credit and invoice discounting.

This market segment creates as much as 60% of jobs and contributes an equal amount to the GDP of many African countries yet they often lack sufficient funds to grow their business. In response, ATI rolled out a financial product for banks enabling them to better support SMEs in 2013 resulting in a surge in demand from many of the continent’s largest banks.

“We’ve tried to make it easy for banks and insurance companies to work together. That this was created in Africa is perhaps fitting. It is another example of the continent’s growing reputation as an incubator for innovations – this is born out of a necessity to find solutions to very unique challenges,” notes George Otieno, ATI’s CEO.

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George Otieno, ATI’s CEO. >

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This solution is cutting edge. It fills a market gap, provides an accessible solution for a significant segment of the economy in most countries and, not least of all, because it pairs two uncommon partners.

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PRIVATE EQUITY

BRINGING IN CAPITAL – AND A FRESH PERSPECTIVE

Handing over a percentage of the company you’ve built isn’t easy, but African businesspeople are increasingly seeing the benefits of private equity funding, for growth and expertise

n what may have been the largest private equity (PE) deal this year in Africa, the US private equity juggernaut Kohlberg Kravis Roberts (KKR) bought Dutch flower grower Afriflora, which is based in Ethiopia. It is a sign that African PE has hit the big time: KKR is one of the largest fund managers in the world, with $95bn in assets under management. The sector has greatly changed since the days of the early PE funds in the mid-90s, themselves often the investment arms of big donors such as France’s Proparco or the Commonwealth Development Corporation. The emergence of local and national funds,

and a greater willingness on the part of African companies to open their equity to outside investors, created a fresh impetus – and the maturity of the market can be gauged by the recent arrival of global heavy hitters such as US firms Carlyle, KKR and Blackstone, and France’s Wendel. THE BIGGER PICTURE African companies are cash-starved despite the high liquidity levels of local banks, and this is pushing firms towards PE, says Serge Thiémélé, an associate at Ernst & Young in Côte d’Ivoire: “They have realised that they can’t finance everything with bank

debt – even more so as access to debt finance is limited if one’s own funds are limited.” But at heart, the PE route remains a tough emotional proposition for many African businesspeople, especially those who have built up companies from scratch. Handing over a percentage of their companies to outsiders – even in exchange for cash – is still a new phenomenon. But attitudes are changing, with some entrepreneurs seeing the bigger picture. “I would rather have 30% of a large group than 90% of a small business,” says Mossadeck Bally, founder of Azalaï Hotels Group – one of the few African-owned hotel chains on the continent and active in five West African countries. Bally, who is responsible for the overhaul of the Azalaï Hôtel Salam in Bamako, Mali, is a keen ad- ● ● ●

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16-17 March 2015, Abidjan

3RD EDITION

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FINANCING GROWTH

One thing that African companies logy.” For Chung, entrepreneurs and have to keep in mind when courting companies receptive to new ideas and capital will be the ones to dominate or being courted by PE is the exit, the point at which the investor recoups the future of African business. The entry of PE company Wendel, a their initial outlay plus profit. “It’s French investment company, into the important that both parties are fully capital of IHS, a pan-African telecoms aware of the exit strategy and time infrastructure company that puts up lines involved before any engagement,” warns Thiémélé. mobile phone towers, is a good exHelping matters is the fast-improvample. In 2013, IHS was looking for short-term loans to extend its network ing international profile of the conof towers in Nigeria. Wendel wanted tinent, with multinational firms now to lend over a longer term. But when IHS got the opMultinationals are looking hard portunity to invest in towers in at Africa, which has increased Côte d’Ivoire and Cameroon, the exit possibilities for investors Wendel stepped in. “We invested, in total, $420m in IHS, which allowed them to raise a furlooking hard at opportunities in Africa. FISHING FOR NEW IDEAS ther $1bn,” says Stéphane Bacquaert, This has greatly increased the exit Georges Chung, the chairman of Mauritian financial services company managing director of Wendel, “and possibilities for PE investors looking Kross Border, is a great believer in this we brought our experience to bear in to sell on their stakes. gospel of opening to new ideas and expanding to francophone Africa, a For example, French multinational market we know better than Nigeria.” Danone bought West African dairy new technologies to help restructure companies: “Mauritius has gone from While a short-term investment in IHS company Fan Milk from PE company being an economy that was totally in a Nigerian expansion would cerAbraaj Group in 2013, in what Abraaj CEO Arif Naqvi called “the largest closed to one that is very open. And tainly have been profitable, Wendel [fast-moving consumer goods] private in two decades we have become the management preferred the regional third-largest producer of tinned tuna expansion – which has lifted the comequity transaction in sub-Saharan worldwide, thanks to Japanese technopany into a new league. Africa, outside South Africa.” Another significant transaction was the investINVESTOR FOCUS PER COUNTRY 2014 NUMBER OF DEALS BY REGION 2013 ment of Standard Chartered Private Equity and Ashmore Group in the Senegal Ethiopia Nigeria 26 equity of GZI, an aluminium can com3 14% pany in Nigeria. 5 46% 71% “It’s really a sign of the vitality of 7 Côte d’Ivoire Uganda the sector,” says Nina Triantis, manKenya South aging director of telecoms at South Sudan 24 57% 71% 75% Africa’s Standard Bank, who points 19 % 13 to the large number of deals signed in 2005/6 that are arriving at their exit REPORTED DEAL VALUES BY phase. “If the return on investment is REGION IN US$ MILLION 2013 demonstrated by these cases, we will % 14 see even more people interested in % 1,849 14 Togo Burundi 4% entering the market.” 17% Rwanda Sierra Leone The head of the African Private % 57 Equity and Venture Capital Associ% 58 Tanzania 163 ation, Michelle Essomé, says she was Ghana 678 surprised when their research found 29% Botswana 545 that 200 PE exits were made in Africa Namibia 14% 491 between 2007 and 2013. When it comes to return on investment, “in 2013 we East Africa Central Africa 71% South Africa 14% Swaziland compared it to the (Johannesburg West Africa Cross-regional Southern Africa Continental Stock Exchange) All Share Index, and it was twice as high,” she says. 12 For African companies looking to 10 9 NUMBER OF DEALS IN SUB-SAHARAN leverage outside expertise to restrucAFRICAN COUNTRIES 2013 ture their companies and access funds 5 5 for growth, PE may be an answer – so 4 3 3 long as they are eyes wide open about how an investor is going to exit. ●

SOURCE: 2014 EAST AFRICA PRIVATE EQUITY CONFIDENCE SURVEY

● ● ● vocate of the non-monetary benefits of PE, and has already been through two rounds of funding with Cauris Investment funds. “What a fund brings is more than just financial,” says Bally, who lists help with governance, contacts, strategic vision and training staff as examples of value added from a PE transaction. “It has helped us restructure our group,” he says. While African businesses may be wary of foreign capital scooping up choice contracts and muscling its way into local markets, there are ways local companies can use these intangible benefits to transform themselves into global competitors.

Kenya

South Africa

Nigeria

Côte d’Ivoire

Rwanda

Ghana

Uganda

Nicholas Norbrook

Tanzania THE AFRIC A REPORT

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The bigger picture We have come a long way since 1838. Today, the MCB Group is a leader in financial services in Africa. At the heart of Mauritius, a fast-growing financial hub ideally placed between three continents, we are a trustworthy partner that will help you go places. Together, let’s look at the bigger picture. • Investment Banking • Corporate Finance & Advisory • Consulting Contact us: financingsolutions@mcb.mu

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COUNTRY FOCUS

Mauritius TOURISM PLAYS A CRUCIAL ROLE IN THE ECONOMY WITH A DRIVE TOWARDS WOOING HIGH-NET-WORTH VISITORS

HOLGER LEUE/CORBIS

MISSING THE SWEET SPOT T

Despite government hopes of Mauritius becoming a high-income country by the end of the decade, analysts fear the downturn in the key sugar and tourism industries, sparked by the European economic crisis, mean it will miss its 2020 target. Meanwhile, the financial sector remains under pressure due to concerns over the future of a crucial tax treaty

By Jana Marais in Port Louis

THE AFRIC A REPORT

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he year 2020 looms closer, with Mauritius’s stated ambition of becoming a high-income country by this date looking increasingly out of reach. As Mauritius transitions from an economy dependent almost exclusively on agriculture in the 1960s to one with strong textiles, finance and tourism sectors, it is still on course to be the richest non-resource-dependent country in Africa by 2025, according to estimates from local analysts. However, with doubts over the role Mauritius’s financial sector will play in India, ● ● ●

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MAURITIUS

the country’s African ties are becoming ever more important. Politicians and businessmen say there is much to be done to address challenges from a changing international policy environment and to strengthen the infrastructure and human resources bases of Mauritius’s long-term economic growth. “If you look back over the medium term, the Mauritian economy has performed very well. But the feeling now is that all the low-hanging fruit has been picked. We’ve done quite a bit of business facilitation and so on. There are now difficult issues that need to be tackled,” Xavier-Luc Duval, the leader of the Mauritian Social Democratic Party, who resigned as finance minister in June, tells The Africa Report. The government organised a wideranging debate on its Vision 2020 programme back in 1997, with working groups on agriculture, tourism, industry, science and employment, among other topics. With just a little more than five years to prepare a new vision for the island’s development, policy makers are thinking about what areas of the economy could raise per capita gross domestic product (GDP) from $9,300 in 2013 to $12,746, the current World Bank high-income threshold. ●●●

PORT-LOUIS Indian Ocean

MAURITIUS

Indian Ocean

10 km

MAURITIUS IN NUMBERS POPULATION GDP (current US$)

$11.94 billion

GDP GROWTH (annual %)

3.2%

INFLATION

3.5%

BANK CAPITAL TO ASSETS RATIO (%) 8.1% (2012) FOREIGN DIRECT INVESTMENT $360.93 million (2012) STOCKS TRADED, TURNOVER RATIO (%) 4% BANK NON-PERFORMING LOANS TO TOTAL 4.1% GROSS LOANS (%) TOTAL RESERVES (includes gold, current $3.49 billion US$)

WORLD BANK 2013 (2012); STOCK EXCHANGE OF MAURITIUS; TRADING ECONOMICS

1.296 million

ANNUAL GDP GROWTH 10

Mauritius Sub-Saharan Africa (developing only)

SOURCE: WORLD BANK

2 0 2004 05

BANK CASH HOLDINGS 30 000 25 000 20 000

Excess cash holdings Bank cash balance Required cash balance

15 000 10 000 5 000 0

Jan Nov Aug Jun Apr Jan Nov Sep Jun 07 07 08 09 10 11 11 12 13

13 SOURCES: MAURITIUS AUTHORITIES & IMF STAFF CALCULATIONS

OFF TARGET In July financial services company MCB Group echoed International Monetary Fund (IMF) analysis that the Mauritian economy is growing too slowly to meet the 2020 target. The IMF predicts real GDP growth of 3.7% this year and says that the economy would need to grow by a rate of about 5% per year for the country to reach high-income status by 2020. At current rates of growth, MCB says that Mauritius will become a high-income country by 2025 if growth maintains an average of 3.3%. In 2013, Mauritius ranked 20th out of 189 countries in the World Bank’s Doing Business ranking, making it the topranking African economy. Nonetheless, MCB’s researchers warn that the government has not implemented reforms rapidly enough and that public investment has been slow to materialise. While many of the country’s institutions, including its judiciary and Board of Investment, are strong, reform is needed to address shortcomings at others, Duval says. “I’m talking about the fight against poverty, the National Empowerment Foundation. I’m talking about having water all around

the clock, about the Central Electricity Board, about increasing productivity in the civil sector. There are many shortcomings that need to be addressed that will push us through to become a highincome country,” he explains. While national elections, due by 5 May 2015, may lead to a change in power, economic policy is not expected to change much,saysMCBGroup’schiefstrategyofficer Gilbert Gnany. “All the main parties have more or less the same economic policies. Even when you see a change in coalition partners, there is no disruption in terms of economic policy. There are minor differences, for example on social spending, but no one is challenging the 15% tax rate. No one is challenging the 0% on dividends or capital gains. It’s a given,” he explains. A July IMF report says that growth rates could rise “with strong pro-active policies including improving investment and savings rates, improving the efficiency of social spending and public enterprise reforms, investment in education and education reforms, labour market reforms and further measures to reduce bottlenecks and increase productivity.” While a coalition that involves some of the four main parties is likely to win the next national elections (see page 60), a new party will face a crucial first test

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MAURITIUS

COUNTRY FOCUS

TIM COCKS/REUTERS

However, the treaty is being renegotiated amid concerns in Delhi that Indian companies are using Mauritius for ‘round-tripping’ of funds. This involves Indian companies moving money through Mauritius in order to avoid paying capital gains tax in India. Talks to renegotiate some of the terms of the DTAA are ongoing, and the Mauritian authorities maintain that there are strict regulations in place to ensure transparency and prevent abuse by shell companies. While bankers and government officials have downplayed the risk to the Mauritian economy should the deal be cancelled, Prime Minister Navin Ramgoolam has been trying to woo Delhi. He attended the swearing-in ceremony of Prime Minister Narendra Modi in May and met with him to discuss the treaty.

in shifting the political debate. Roshni Mooneeram, an academic who officially launched the political party Ensam in July, says a focus on general economic indicators fails to capture the unhappiness in the country. “We have seen a number of examples of unsustainable and even destructive sectoral development, for example the IRS [integrated resort schemes] with its gated developments, tourist enclaves and the impact these have on small businesses such as restaurants, which are closing in the north. When will we accept that a large portion of our educated youth wish to leave Mauritius to never come back, the growing population of old people who have to queue for bad health care, that the cost of living has become prohibitive and that we still have 8,000 families living under the poverty line?” she asks. FINDING A NICHE Each of the country’s major economic sectors has its own challenges. With a drastic drop in the portion of investment flows to India being routed through Mauritius – historically a major driver of its financial sector – the country is looking to Africa for new business. However, competition is strong. South Africa’s major banks have experience and a major footprint on the rest of the continent, THE AFRIC A REPORT

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LOW SUGAR PRICES TRIGGERED BY OVERSUPPLY IN EUROPE HAVE DRIVEN MAURITIAN FIRMS TO LOOK ELSEWHERE

FDI FOOTHOLD “I don’t think it [negotiations regarding the treaty] is a major issue, but it will be good to have certainty sooner rather than later. Uncertainty isn’t good for investors,” Gnany says. With or without the treaty, Mauritius is already losing traction as the preferred channel for India-destined investments. Singapore overtook Mauritius last year as the biggest source of foreign direct investment into India, accounting for nearly a quarter of India’s total, according to data from India’s Department of Industrial Policy and Promotion. Flows through Singapore increased by 160% to $6bn, while those from Mauritius nearly halved to $4.9bn, down from $9.5bn the previous year. Over the past few years, the finance sector has turned to Africa, and that pivot has already shown itself to be successful. “If you look at our proximity to the

while Morocco, with a traditional focus on Francophone Africa, is extending its trade and commercial interests and trying to lure stock exchange listings from south of the Sahara. MCB’s Gnany says the Mauritian financial sector can be competitive in a few niche areas, for example by using its relationships and India’s knowledge of its legal and tax system to capture a part of investment flows between AsiaandAfrica.“We’resosmall, Singapore overtook Mauritius we can’t do everything. Today, as the biggest source of foreign large Indian companies are indirect investment into India vesting in Africa, using Mauritius to set up a structure to incontinent, the fact that we’re bilingual vest in the continent. They’re used to and the ease of doing business here, it it. It was the other way around before, with money flowing from elsewhere via makes us an ideal place to launch a venMauritius into India,” Gnany explains. ture into Africa,” former finance minister Duval says. A double-taxation avoidance agreement (DTAA) with India, signed in 1983, Jacques Nel, an economist at NKC InplayedakeyroleindevelopingtheMauridependent Economists, agrees: “With a tian financial sector. It encouraged insubstantialnetworkofinvestmentprotection treaties and double-taxation avoidvestors to route money through the Indian Ocean island to benefit from its low ance agreements, and a highly sophistictax environment, where foreign companated banking system in place, Mauritius ies pay an effective 3% tax rate on profits is in a prime position to cement its role as and 0% on dividends and capital gains. an investment hub into Africa.” Statistics

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from the Mauritian Financial Services Commission show Africa is the main recipient of investment flows channelled through Mauritius, with 54.4% of all flows last year targeting the continent, up from 40% in 2010. InordertoencourageMauritianinvestment and closer trade ties with Africa, the government announced subsidies for freight costs and credit guarantee insurance for exports in the 2014 budget. It also announced the establishment of the Rs500m ($16m) Africa Fund. Over the next five years, it will provide equity financing for companies investing in African projects. TOURISM LYNCHPIN Enterprise Mauritius, which is tasked with finding markets for the country’s exports, is targeting a number of African countries in order to reduce the country’s dependence on Europe. The country’s banks,textileandtourismfirmsareslowly expanding their footprints in countries like Bangladesh, Kenya and Zimbabwe. Closer collaboration with Madagascar, where investment has been hampered by a five-year political crisis, offers growth and investment opportunities for both countries. A model similar to the ‘growth triangle’ that Singapore established with Indonesia and Malaysia in the late 1980s - where Singapore brought management skills and technology to the table and Indonesia’s Riau Islands and the Malaysian state Johore offered land and low-cost la-

bour - may also help attract major investproduced similar results in the first half ments and job creation in both countries. of 2014 and recorded a loss of $5.1m. The Mauritian tourism sector, a key pilThe manufacturing sector has faced its laroftheeconomy,recordedlowergrowth own challenges. Despite some progress rates than those recorded in other Indian (see page 64), the Bank of Mauritius Ocean islands, including the Seychelles, reported that the sector accounted for Maldives and Sri Lanka. The downturn 23.6% of GDP in 1990 and fell to 16.7% in Europe has reduced arrivals from that in 2012. Last year, when talking about the region, but marketing efforts have led need to look beyond 2020, central bank governor Rundheersing Bheenick called to an uptick in visitors from China. As a for a more innovative private sector. To result, the government reported a 2.4% support research and development carise in tourism revenue for the first half of this year to $735m. The DTAA is not the only The 2014 budget subsidised international agreement that foreign freight costs in order to could negatively impact busihelp boost trade ties with Africa ness in Mauritius. Ahead of the United States-Africa summit in pacity, the government announced its Washington DC in August, textile producers and other members of the Mauritius backing for the creation of the InternaExport Association expressed concerns tional Institute of Technology Research that they could soon be disqualified from Academy in July. The Mauritius Research duty-free benefits of the African Growth Council and the Indian Institute of Techand Opportunity Act because of the level nology will support the new institute. of the country’s development. With low sugar prices due to overOCEAN ECONOMY supply in Europe, Mauritian companies The government is focused on building are looking elsewhere for growth. Despite what it calls the ‘ocean economy’, which reportingalossof$7.7mforthefirsthalfof it hopes will contribute 17% to GDP by the year, in July Omnicane announced its 2020, up from 10.8% in 2012. “In a very intention to invest $250m in a sugar-cane short period of time, we’ve been able to plantation in Ghana that is set to yield get those working in port development, tourism and fisheries to come together 100,000tn per annum. Terra Mauricia so we can adopt an integrated approach towards all ocean-related activities,” says CONSERVATION IS KEY TO GOVERNMENT Milan Meetarbhan, ambassador of MaurPLANS TO HARNESS THE ECONOMIC itius to the United Nations. POTENTIAL OF ITS OCEAN TERRITORIES The University of Mauritius has already established a faculty of ocean studies to help build capacity, and laws that will enable the government to issue oil and gas exploration licences should be in place by next year. “For small islands, the ocean economy is an opportunity to expand economic space. We have very limited land, and while there are continuous efforts to diversify the economy, there is only so much we can do [...] To really take advantage of this, we mustn’t just have the right economic policies and laws in place, but also make sure we have the right policies with respect to conservation,” Meetarbhan concludes. Dev Chamroo, chief executive of Enterprise Mauritius, is optimistic: “We thought sugar was going to die out. It emerged into a cane industry. We moved from exporting raw sugar to producing two of the world’s best rums. If you look at all the initiatives that government has initiated since independence - none of them have fallen or died.” ● REINHARD DIRSCHERL/GETTY IMAGES

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STRUCTURED AND CORPORATE FINANCE

Their achievements are our business USD24.6 million

Undisclosed

USD38.3 million

USD70 million

Undisclosed

Advised Sapmer, a leading French seafood producer, on its private placement of perpetual bonds.

Financed the expansion of MODE, a leading provider of nano credit through mobile phones in 18 African countries, from its start-up phase.

Advised ENL, one of the largest Mauritian conglomerates, on its private placement of fixed and variable rate notes.

Financed the winning bidder for the supply of petroleum products to Kenya.

Financing the construction of petroleum storage facilities in Beira and Matola, Republic of Mozambique, as part of a syndicate of banks.

2014 Mauritius

2014 Mauritius/Kenya

2014 Mauritius

2014 Kenya

2014 Mozambique

USD150 million

USD40.8 million

USD40 million

USD90 million

Financed the Kuwait-based traderâ&#x20AC;&#x2122;s supply of petroleum products to the State of Mozambique.

Advised MCB on its public issue of subordinated notes in local currency and their listing on the Mauritius Stock Exchange.

Arranged a syndicated debt facility and acted as facility agent for the acquisition of fishing vessels.

Advised New Mauritius Hotels, a leading hotel group, on its issue of a multi-currency bond.

Structured and financed the construction of a beach resort comprising 236 luxury residential units and a 5-star hotel and spa.

2013 Kuwait

2013 Mauritius

2012/13 Mauritius

USD68 million

USD35 million

Structured and financed the construction of a 40,000 m2 shopping mall.

Arranged and financed the construction of a 4-star resort comprising an hotel of 110 rooms managed by Constance Hotels and Resorts.

2011 Mauritius

2011 Maldives

For all your financing requirements, please contact us on (+230) 202 5608 or email corporatefinance@mcbgroup.mu

mcbgroup.com

COUNTRY FOCUS

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PEOPLE TO WATCH

BRUISERS, BANKERS AND BUSINESS LEADERS While the country’s politicians have their eyes set on elections slated for 2015, its executives and athletes are looking further afield, to the rest of Africa and beyond

LA SENTINELLE LTD

or the past 50 years, four families have dominated Mauritian politics, with sons taking over from their fathers. Roshni Mooneeram, an academic, and her newly launched political party Ensam – which means “together” in Creole – want to change this. The domination of politics by a handful of families has led tocomplacency amongst politicians and citizens, Mooneeram says. She argues that Ensam will contribute to a healthier political culture that is more forward looking in order to build a much more prosperous and successful country. Predicting election outcomes in Mauritius is not easy, as coalitions – often subject to change – are generally needed to win. Four main parties dominate the political field: the Labour Party, led by Prime Minister Navin Ramgoolam; the Militant Social Movement (MSM), led by Pravind Jugnauth; the Mauritian Militant Movement (MMM), led since 1976 by Paul Bérenger (1), who became the country’s first non-Hindu prime minister in 2003 and currently serves as the opposition leader in parliament; and the smaller Mauritian Social Democratic Party (MSDP), led by Xavier-Luc Duval (2). Duval and the MSDP formed part of Ramgoolam’s ruling alliance until he stepped down as finance minister in June after a dispute over proposed electoral and constitutional reforms. The MSDP says constitutional reform should be subject to a referendum. Ramgoolam and Bérenger are busy negotiating a partnership for the next elections, which should take place before 5 May 2015. A winning coalition could bring Bérenger back into a senior government role. The Labour Party’s Arvin Boolell, currently foreign affairs minister, might be a candidate for deputy prime minister. Jugnauth’s legal troubles

LA SENTINELLE LTD

may also be over by the time elections are held, which could pave the way for a MSM comeback. The party quit the ruling alliance in 2011 due to corruption investigations into the 2010 purchase by the government of the MedPoint clinic for Rs144m ($4.7m). Jugnauth was finance minister at the time and his sister and brother-in-law were shareholders in the company. A court ruling on the case is expected in September. With the economic policy unlikely to change drastically no matter who is in power, businesses are focusing their efforts on diversifying operations and expanding their footprints, particularly in Africa. While Mauritian companies are lookingabroad,KenPoonoosamy,managing director at the Board of Investment, wants to lure investors to the country and diversifytheeconomy.Poonoosamy,who hasbeeninvolvedinmarketingMauritius as a global business hub since 2005, is promoting a range of sectors, including agriculture, seafood, logistics, renewable energy, manufacturing and film-making. Dev Chamroo, chief executive of export promotion body Enterprise Mauritius, is on a charm offensive to find new markets. Given the small size of the economy, the aim is not to become an exporter to the world but to find the most attractive markets, with recent surveys covering Angola, Brazil, Malawi, Zimbabwe, Turkey, Egypt and Zambia. Jean-Pierre Dalais, appointed executive director of the CIEL Group in January, is seeking investment opportunities in the Indian Ocean region. CIEL, one of the biggest conglomerates in Mauritius, bought a controlling stake in banking group BNI Madagascar in partnership with First Immo in June. CIEL’s finance arm is probing investments in Kenya, while its textile business is targeting Bangladesh, China and India. Mauritius’s athletes have also been enjoying success overseas. Shalinee Valaydon (3) was crowned African weightlifting champion and Mauritian sportswoman of the year in 2013, while Fabrice Michel Bauluck, was named sportsman of the year for the second year in a row. Bauluck won the WAKO Kickboxing World Championship in the under-54kg category in October 2013. However, it was James Kennedy St Pierre who brought home the only medal from the Commonwealth Games this August. He won silver in the under-81kg boxing division. ●

THE AFRIC A REPORT

Jana Marais in Port Louis ●

FINANCE SPECIAL

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Advertorial

First solar plant in Mauritius helps keep the lights on Sarako has built the first solar plant in Mauritius in record time, adding installed generation capacity of 15.2 megawatt (MW) to the countryʼs constrained grid within a year after project planning started. The plant, which delivered its first power in February, is a partnership between Sarako and German energy group Tauber-Solar. The photovoltaic (PV) project, which saw 60 800 solar modules constructed on about 18 hectares, was built in five months by Germanyʼs ConEcon Group. In August, Sarako won a bid in Burundi to build two 10 MW plants. Sarako plans to have the countryʼs first solar farm operational early next year, CEO Sham Seetaram said Mauritius is luring renewable energy players and is investing nearly $130-million to add 60 MW capacity to its Saint Louis power plant, which burns heavy fuel oil, to avoid a shortage of electricity supply by the end of 2015. Should the Saint Louis project run late, a supply gap of 36 MW is forecast for end-2015 as existing generators are decommissioned and two independent power projects reach their end of life, according to African Development Bank (ADB) data. The Sarako project is therefore not only adding muchneeded capacity to the Mauritian grid, but will also help the country achieve its target of 35% of its energy to come from renewable sources by 2025, up from 20% in 2010.

DIFCOM: S.G.; PHOTO: SARAKO

Wind farms with a total installed capacity of 40 MW and solar farms with a capacity of 25 MW are expected to be commissioned by January 2015, according to Invest Mauritius. The country is also targeting energy efficiency gains of 10% by 2025 and investment in waste-to-energy projects. It currently produces 425 000 tons of waste

annually, growing at 2% per year. In 2013, peak demand was 466 MW, while the effective generating capacity was 489 MW, leaving a reserve margin of 43 MW. Electricity demand in the country is increasing annually by 12 MW to 18 MW, according to the ADB. The state-owned Central Electricity Board (CEB) produces around 40% of the countryʼs total power from hydro, heavy fuel oil and gas turbines for peak periods. It also has the sole responsibility for transmission and distribution of electricity in Mauritius. Independent power producers (IPPs), mainly sugar producers using bagasse as a fuel source during the crop season and coal during the rest of the year, supply the remainder. The country is focusing research and development efforts on deep ocean water applications, exploit deep sea water currents for cooling and other uses; geothermal energy, which taps into the potential of heat generated by the earth; and offshore wind farms, which demonstrate potential for large-scale developments in the waters of both Mauritius and Rodrigues, according to Invest Mauritius. The Sarako project, which is located in the Bambous region about 15 kilometres southwest of Port Louis, included the construction of a special solar park substation and a 4.2 kilometre power line. Located on steep slopes and a volcanic subsurface, 22 000 holes had to be bored for the substructure and stabilised with drymix. The contractors also had to factor in the islandʼs location in a cyclone zone, where wind speeds can reach 280 km/h during the summer months. It will generate about 24 gigawatt hours of electricity and conserve 15 000 tons of carbon dioxide emissions per year, Sarako said.

Parc solaire à Maurice

SARAKO / SOLAR ENERGY 72201 Module GB 1 Ground FloorEbene, Mauritius www.sarako.mu

COUNTRY FOCUS

MAURITIUS

INTERVIEW

Cader Sayed-Hossen Minister of Trade and Industry, Mauritius

WE SHOULD REINTRODUCE PLANNING

FABIEN DUBESSAY

Through a strategy of liberalisation, deregulation and internationalisation, since 2006 the tiny island nation has grown by more than 3% while the West has languished in recession. Now it’s time to look to the next decade

The upscaling has been the result of a joint effort by the private sector realising that it has to go upmarket in its production system, facilitated by the government when we introduce classes and training schemes, etc. – and when we introduce incentives for the private sector.

TAR: Was the upskilling and upgrading in technology in the agribusiness and textile sectors led by the private sector, or was it a purely government-driven initiative? CADER SAYEDHOSSEN: I would say it happened in a very natural way. You know, Mauritius has never been a statedriven economy. It has always been private-sector driven and, of course, there have been periods in our history where there has been a conflict between government and the private sector. It is the job of the private sector to look after business, to produce and to make profit and it is [the government’s] job to tax that profit and run society. We try to make life as easy as possiblefortheprivatesectorwhile keeping in consideration something that is very important to us – that is social protection. Our social security system extends a very broad net to vulnerable people, widows, the handicapped, the elderly, accident victims, etc. In order to do these things we need revenue, and to have revenue we need the private sector to produce that revenue so that we can tax it.

Do you have a big planning department similar to those of the developmental states of Ethiopia and Rwanda? We were a developmental state for about 25 years, until 2005/2006 when we introduced the reforms. When the reforms were introduced, we also stopped economic planning. But I’m personally of the view that we should reintroduce economic planning because economic planning gives a hol-

Absolutely, I think it’s a brilliant system. We do that in Mauritius, I do that, at least, in my ministry. I meet regularly with industry representatives two or three times a month and I have an open-door policy with most of the institutions in the private sector. If they need to see me at just a few hours’ notice they see me within just a few hours. But regularly we sit down with industry and with academia. We should maybe also start doing it with students. Do you think there is a clash between those countries that believe in an open market philosophy and those that want to be in a developmental state mode? There could be a clash. I know that there is a school of thought that tells you that an open market will ultimately bring prosperity for all, in the sense that the market is always right. I don’t share that view at all. I think that at a given moment in the history of economic development of a country, there are probably certain industries whichneedtobeprotected,maybe not for a long while. But I think it is fundamentally unfair to tell a building industry in an African country which is only five years old to compete with another which is maybe 50 years old and has a market base maybe 200 times bigger. I think there is a fine balance to find between free-market access and the protection of your [indigenous] industries. ●

“There is a fine balance to find between free-market access and the protection of your industries” istic view of an economic system, in terms of where it is today and where you want to take it in five or 10 years’ time. But I don’t think we should go beyond 10 years. So we don’t have economic planning as you described, but I really think we should reintroduce it. Do you like Singapore’s idea of having teachers, industry and government representatives get together to discuss what kind of syllabus is needed for the industries of the future? THE AFRIC A REPORT

Interview by Nicholas Norbrook ●

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Mauritius looks beyond beaches to lure visitors Mauritius is on track to achieve its target of 1 million tourists this year as it lures increasing numbers of visitors from China and the UK. The number of tourists from China has jumped 86% in the first six months to 31 938, while tourists from the UK increased by 10.5% to 47 142, data from Statistics Mauritius shows. France remains the biggest source of tourist arrivals, accounting for 24% of the 490 697 arrivals over the period. Other big markets include India, Germany and South Africa. The Mauritius Tourism Promotion Authority (MTPA) is working hard to build awareness of the country as a multi-faceted destination in new markets in Asia and the Middle East. As part of the diversification strategy, it aims to attract 80 000 Chinese tourists this year, up from 15 133 in 2011. “There is a lot of competition from countries wanting to attract Chinese visitors. Weʼve been able to move quite fast,” said Dr Karl Mootoosamy, the director of the MTPA. An estimated 3% of the Mauritian population is from Chinese origin, offering a rich cultural history and tourism industry workers who can speak Mandarin.

DIFCOM: SG/CDS - PHOTOS: FOTOLIA

This year, the MTPA marketing activities, through road shows, trade fairs and hosting tour operators, have centred on China, Japan, Kuwait, Qatar and Russia. Southern China Airlines launched a weekly flight from Shenzhen to Mauritius in june 2014. Dr. Mootoosamy said the country wants to continue attracting high-end visitors. In addition to building awareness in new markets, the MTPA is selling Mauritius as more than just a beach holiday.

“WE HAVE IDENTIFIED A NUMBER OF DIFFERENT INTERNATIONAL

GOLF TOURNAMENTS; WEʼRE HOSTING ANNUAL CONVENTIONS.

WEʼRE

DEVELOPING OUR INLAND ACTIVITIES AND SPORTS

EVENTS, SUCH AS MARATHONS.

THIS

YEAR, OUR FOCUS IS

ON SPORTS, SUCH AS GOLF AND KITE SURFING, AND ECOTOURISM,”

Dr. Mootoosamy said. “The fact is that Mauritius offers so many things beyond just the beach,” he said. A broader offering will also help Mauritius to address the challenges around seasonality, with beach-going visitors preferring the hot summer months. Wedding groups, honeymooners and families will remain a key selling point for the MTPA, but there is a need to attract younger people and develop nontraditional markets, he said. Italyʼs Costa Cruises will resume operations in the Indian Ocean as from January 2015, bringing tourists to experience Mauritius, Madagascar, the Seychelles and Reunion Island. The planned two-week trips are expected to bring 20 000 visitors to Mauritius next year, a number that is forecast to rise to 100 000 by 2025. The MTPA also sees potential in developing Mauritius into a hub for tourists heading to Southern and East Africa. “We want to be the transit point for visitors coming from Asia, spending time here before moving on to for example Kenya or South Africa,” Dr. Karl Mootoosamy said. Next on the MTPAʼs agenda is making inroads into the North American market, an area the MTPA will focus on in 2015/16, he said. Tourism currently contributes about 7% to gross domestic product (GDP), and is a major foreign exchange earner for Mauritius.

Mauritius Tourism Promotion Authority 5th Floor, Victoria House, Saint Louis Street, Port-Louis, Mauritius Tel: (230) 210 1545 - Fax : (230) 2125142 www.tourism-mauritius.mu - www.mtpa.mu

COUNTRY FOCUS

MAURITIUS

MANUFACTURING MADE IN MAURITIUS No longer satisfied with merely canning tuna and spinning yarn, entrepreneurs are producing high-end goods ranging from watch parts to complex medical devices

LOCAL ADVANTAGES The country already had some skilled labour in the jewellery sector thanks to its history as a diamond polishing centre, and the Mavros family knew the country as a holiday destination. “It is quite dynamic and flexible enough to operate a global luxury brand. We never came here for tax reasons. There are some sensible policies in place to encourage investment, and the political and economic environment is relatively stable,” Mavros explains. It also helps that the company can import a lot of its raw materials duty free and hire craftsmen from Zimbabwe. “We don’t design everyday wedding bands, so we require highly skilled craftsmen we’ve trained ourselves. It’s relatively easy to get work permits if you follow the process and ensure skills transfer

takes place to a local craftsman,” Mavros tells The Africa Report. In addition to jewellery manufacturing and diamond polishing, producers have found competitive niches in areas such as medical devices, high-end tools and watch parts for international brands. Natec Medical established operations in Mauritius in 2000 after also considering Mexico, India and China. “The country offers a lot of opportunities for entrepreneurs,” says Miroslav Secerov, vice-president of marketing and sales at Natec. Low taxes, a stable and business-friendly environment, and its geographic location near fast-growing India counted in its favour, says Secerov. At the third quarter of 2013, around 20% of people were employed in the manufacturing sector

However, challenges remain. Lack of access to sufficiently skilled labour, limited research and development, and infrastructure gaps are some of the factors contributing to the cost of production. “Getting the right skills can be a bit more complicated. It is easier to get people in textiles, information technology and banking. But people are educated, and it is not difficult to train them to follow processes and systems and so on. The challenge is when you’re looking at creating or designing new products,” argues Secerov. STATE SUPPORT The government is trying to address such problems and launched a $3.4m fund this year to finance research and innovation. All Mauritian companies are eligible to apply for a grant of up to $170,000 per project. Mauritius has also made much progress in protecting intellectual property, patents and brands, which is crucial for companies investing in research and innovation, Secerov says. Other support measures that are in place include an investment tax credit scheme for high-tech manufacturing. The LEMS Forex programme also provides interest rate relief, government funding for export promotion and a fast-track system for work permits for exportoriented enterprises. Nonetheless, connectivity remains a challenge for exporters. This year, Mauritius will invest Rs3.2bn to improve the port at Port Louis by deepening the navigation channel, extending the quay and upgrading the multi-purpose terminal. ● Jana Marais in Port Louis

PATRICK MAVROS

s the textile industry moved up the value chain, the Mauritian manufacturing sector has recorded significant growth in output of highvalue-added products. Exports of jewellery and related goods increased by an annualised rate of nearly 12% between 2008 and 2013, according to MCB Group data. Shipments of manufactured goods, excluding agro-products, textiles and garments, were up 36% from 2009 to Rs8.3bn ($270m) in 2013. Luxury jewellery brand Patrick Mavros, with a home base in Zimbabwe, established a workshop and design studio in Mauritius in 2006 after considering a number of countries in the region. Forbes Mavros, who is in charge of the brand’s Mauritian operations, explains: “We’ve decided to come here because it is a user-friendly environment for investors. Particularly coming from Zimbabwe, where we were going through significant economic turmoil at the time with hyperinflation, for us Mauritius was the Switzerland of Africa.”

SOURCE : INVEST MAURITIUS 2014

A FRIENDLY TAX ENVIRONMENT AND GOVERNMENT SUPPORT IS HELPING BROADEN THE COUNTRY’S ECONOMIC BASE THE AFRIC A REPORT

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Kross Border benefits as Mauritius lures “business with substance”

Kross Border, which originally formed part of KPMG Mauritius but was spun off and rebranded in 2003 to comply with the Sarbanes-Oxley Act, has shared in the Mauritian success story: its staff complement has doubled to 120, and revenue jumped 82% over the past five years in US dollar terms. “We are increasingly seeing business with substance coming here, and I think it is a trend that will continue,” said Jaye Jingree, managing director of Kross Border and one of its founders. An increasing number of Australian mining companies, for example, are establishing offices in Mauritius to manage investments in Africa. Setting up a base in Mauritius offers a stable environment and helps to manage the time difference between the continent and Australia, said Jingree. Gone are the early days of working from 9 to 4 – with global clients to serve, office hours and weekends are no longer set in stone. “We are focused on our service delivery. We respond fairly rapidly to clients, and we’re available 24/7. This, along with the long-term relationships we have with our clients and a low turnover of staff help to give us a competitive advantage. Many of our employees have been with us from the start, and it gives clients some comfort to deal with the same people over many years,” said Jingree. Kross Border currently manages 650 structures, including multinational companies, high net worth individuals, investors, fund managers and financial institutions. The firm has a branch in Singapore and is looking to set up offices in London, Hong Kong and Mumbai. ADVERTORIAL

It has representatives in a number of countries around the world and is affiliated with Russell Bedford International, a global network of independent firms of accountants, auditors, tax advisers and business consultants Kross Border’s main service offerings include fund administration, tax advisory and compliance, asset protection, company formation, re-domiciliation and statutory compliance, accounting and payroll, ship and yacht registration, trade support, fiduciary services and occupation and permanent residence permits.

M. GEORGES CHUNG PRESIDENT

Mauritius has double taxation treaties with 37 countries, with many more under negotiation or awaiting ratification, offering investors greater opportunities to plan their investments. It also has investment promotion and protection agreements in place with 22 countries, including China, Singapore, India, South Africa, Germany, the UK and Switzerland. With uncertainty surrounding the future of a doubletaxation agreement with India, a big business driver for the Mauritian financial services sector, there is a major focus on Africa. “At the moment, everyone is focused on Africa. It is a difficult market to enter – you’re dealing with different countries, different languages. There are many challenges. Mauritius offers a stable platform from where to do business,” Jingree said. Clients are particularly interested in East and West Africa, with investments going into mining, oil & gas, agri-business, infrastructure development and trading, he said. “Mauritius has been a very important point for Indian companies to channel foreign direct investment through Mauritius. Now we’re seeing companies from across the globe using Mauritius as a hub for investment worldwide.”

M. JAYE C.JINGREE MANAGING DIRECTOR

Kross Border

St Louis Business Centre, Cnr Desroches & St Louis Streets, Port Louis, Mauritius www.krossborder.com

DIFCOM/CDS - PHOTOS : DR.

Back in 1993 when Kross Border was established, the Mauritian government’s attempts to diversify the economy from its reliance on sugar started to bear fruit. 21 years later, its financial services industry is well established, and the island is positioning itself as a hub for investment into Africa.

COUNTRY FOCUS

MAURITIUS

VERTICAL INTEGRATION IS HELPING MAURITIAN TEXTILE FIRMS TO GROW DESPITE STIFF COMPETITION FROM CHINA

ED HARRIS/REUTERS

TEXTILES TAILORED FOR GROWTH After years of job cuts and factory closures, Mauritian garment and textiles industry leaders are dreaming big and seeking to make the country into a marketing centre and fashion hub

hile the domestic textiles industry has been declining, many of Mauritius’s largest companies are continuing to grow thanks to vertical integration that allows them to control value chains. They have been investing in technology and training, moving to higher-end production and shifting manufacturing operations to cheaper destinations. Gilbert Gnany, chief strategy officer at financial services company MCB Group, explains: “In textiles today, we can’t compete with China. It is not a question of producing like we used to. More and more you will see the marketing arm staying in Mauritius, while part of the production may be done in Bangladesh or Madagascar.” Companies like CIEL Textile, one of the island’s largest groups, have expanded abroad. Of its 16 production facilities, seven are in Mauritius, five are in Madagascar, while three are in India and one is in Bangladesh. Chief executive Harold Mayer announced last year that the group will invest Rs600m ($19m) in four new plants in Asia over the next five years. Others, like Compagnie Mauricienne de Textile (CMT), have focused on local production. CMT, which started in 1986 with 30 employees doing mainly basic

today. Exports declined slightly from Rs26.6bn in 2000 to Rs24.9bn last year, while employment in the sector fell from 81,000 people in 2000 to around 43,000 in 2013, according to Statistics Mauritius. Dev Chamroo, chief executive of export promotion body Enterprise Mauritius, expects new investment in the textiles sector, including spinning plants and increased dyeing, knitting and finishing capacity. He says that local firms will set up factories elsewhere in Africa. “There is a lot of manpower in Africa, and it is fast building its infrastructure. But those two are not enough: you need marketing, you need access to technology, you need fast access to raw material. We have 43 years of experience – our people know where to source fabrics, where to source trims, where to get accessories, where to get equipment, who are the clients to look at – so we would like to play the same role as Hong Kong does as a marketing destination,” Chamroo says.

cut, make and trim work, is now a fully integrated producer. It has seven proCATWALK AMBITIONS duction sites that also handle design, The country’s financial services sector could also provide funding to the textile knitting, dyeing and sewing. CMT emsector to help strengthen linkages. Tianli ploys 10,000 people and plans to inSpinning, one of the island’s largest supcrease exports from its current level of pliers of yarn, launched a programme 60m garments per year. last year to encourage farmers in MadThe world has changed since investors agascar to grow cotton for its Mauritian from Hong Kong kickstarted the Maurimill, where it is investing tian textiles industry in the Rs2bn to double capacity. 1980s. They were looking Around 60% of exports from Mauritius The government is workfor a new export base head to the Eurozone ing to turn Mauribecause the World tius into a fashion Trade Organisahub. Chamroo tion’s Multifibre % explains: “There Agreement are some great (MFA), which imposedquotas African designon exports from ers, but they’ve developing taken residcountr ies to ence in Paris, the developed New York and SOURCE : AFRICAN ECONOMIC OUTLOOK 2014 world, constrained elsewhere. There is shipments from their factories. After a lot of capacity building going on in two decades of rapid growth, the MauriMauritius and South Africa, and fashion and design schools in countries like tian industry reached a peak in 2000, Senegal and Ethiopia. We are trying to when the rising cost of labour made it see whether we can establish a hub increasingly difficult to compete with where we are using the best African Chinese exports. designers to produce African designs The end of the MFA in 2005 did not help either, and the number of factories and garments for the world.” ● Jana Marais in Port Louis declined from 660 then to around 240

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Mauritius

Where your dreams come trueâ&#x20AC;Ś

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FUTURE OF AFRICA

ARE THE

COUNTRY FOCUS

MAURITIUS

FINANCE BUILDING A BANKING HUB The financial services sector is forging new partnerships and adapting its product offerings to help investors expand their activities throughout Africa

SOURCE: THOMSON REUTERS 2014

Mauritius was the fourth most popular target of M&A deals in sub-Saharan Africa in the first half of 2014.

$408m

FABIEN DUBESSAY/MAXPPP

auritius is positioning itself to become an Africa-focused financial support centre, modelling itself on the role Singapore is playing in Southeast Asia. The country is well established in the sector. It has a wide network of tax and investment protection treaties with African countries and it is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). “Africa is the big opportunity over the next five to 10 years – everyone knows the macro story. The question has changed from why to invest in Africa, to how to do it. Our role will be to help clients manage risk and structure deals,” says James Benoit, chief executive of AfrAsia Bank. Aisha Timol, the chief executive of the Mauritius Bankers Association, says more Mauritian banks are partnering with African banks on major projects in the field of infrastructure, mining and telecommunications. “Some of our banks are also providing banking solutions and services to African banks,” Timol explains. A Mauritian bank is running the credit card system of a group in West Africa, utilising its spare information technology capacity. Local banks are also working in collaboration with South African banks, which have a major presence on the continent but face challenges such as exchange controls. MCB Group, one of Mauritius’s largest financial insti-

THE MAURITIUS

The bank had to restructure its operations and cut down on its branch network. With finance contributing around 9% to gross domestic product and Mauritius rapidly losing market share to Singapore in facilitating financial flows to India, the government is also supporting the industry. It set aside Rs50m ($1.6m) in this year’s budget to help promote Mauritius as an international financial centre and is focusing on strengthening the regulatory framework. Compliance with international regulations has been a major focus for the industry, Timol says. The Basel III standards are the new international norm for banks in Mauritius, with higher capital and liquidity ratios to be introduced in a phased manner.

CENTRAL BANK HAS tutions, is already earning HELPED FINANCIAL nearly 50% of its profits FIRMS COMPLY WITH from outside the domestic INTERNATIONAL market. “While we have a TRADING PLACES BANKING RULES commercial presence in The Stock Exchange of the Indian Ocean islands Mauritius (SEM) is also and Mozambique, we can’t have a flag positioning itself as a platform for in 40 countries. But we also do a lot of African ventures. Since 2009, nearly financing from here, for example trade $2bn has been raised by issuers on finance. The European banks closed the SEM, of which $1.4bn was raised their lines after the [financial] crisis, by foreign issuers listed in Mauritius. “Our multi-currency listing and trading so we financed a lot of oil imports, for platform today allows African issuers example,” says Gilbert Gnany, chief to list and trade their securities in US strategy officer at MCB Group. dollars, euros, British pounds or South African rand at very competitive costs SIGHTS SET OVERSEAS With limited room for domestic expanand ensures the settlement of the unsion, most of the country’s 23 banks derlying transactions in these four inare looking abroad for growth. AfrAsia, ternational currencies,” explains SEM which was founded in 2007, recently chief executive Sunil Benimadhu. increased its shareholding in its ZimThe SEM, with a market capitalisation of around $7.5bn, is also discussbabwean venture and will continue to look for opportunities in SADC and ing the idea of remote membership COMESA, Benoit says. The group is in to attract foreign brokers and partitalks to bring in a major international cipants. Benimadhu argues: “This will constitute an important step towards shareholder to strengthen its balance sheet. “Then a lot more activity across a better integration of our securities the continent will follow,” says Benoit. market with the international finanAfrAsia has been struggling in Zimbcial markets.” ● Jana Marais in Port Louis abwe, where the economy is sluggish. THE AFRIC A REPORT

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INNOVATION

MOBILE MONEY

BANKS GET READY TO TAKE ON M-PESA SVEN TORFINN/PANOS-REA

Safaricom’s popular mobile money-transfer service may finally have met its match as innovation in the banking sector catches up By Gilbert Nganga in Nairobi

eep in sprawling Githurai, a low-income residential estate on the outskirts of Kenya’s capital, Nairobi, a cashier sitting in a small cubicle at a cement outlet is busy counting a wad of cash as dozens of customers queue. A mean-eyed but careful security guard monitors the booth – an agency for Kenya’s second-biggest lender by assets, Equity Bank. The premises is also an agency for the country’s mobile money-transfer service, M-Pesa. At the booth customers can load money onto their phones to pay bills, buy things or send it to relatives, or convert money received via M-Pesa into cash. So far, so familiar – but Kenya is sitting on the verge of yet another mobile

money revolution. Equity Bank (#86), Kenya’s largest lender by accounts, is to launch its own mobile banking platform with Airtel, offering its full suite of services – including, crucially, loans – by mobile phone to its eight million customers. It is the first serious challenge to M-Pesa since the launch of the popular money-transfer system by Safaricom seven years ago. CHARGES SLASHED Equity Bank is not the first to offer realtime loans by mobile phone. In November 2012 Commercial Bank of Africa (CBA, #113) partnered with Safaricom to launch its M-Shwari platform, a complement to M-Pesa that offers savings and micro-loans. But it’s the cheapness of Equity’s products that will keep M-Pesa

on its toes. It says it will lend money for only 1-2% interest per month compared toM-Shwari’s7.5%.Peer-to-peertransfers will be charged at 1% at capped at KSh25, whereas M-Pesa customers can pay up to KSh125 for the transaction. Equity will also allow its mobile bankers to receive international remittance payments. The buzz – and the resistance – the planned Equity Bank product has generated in the telecoms and banking market could only be a hint of the expected shake-up in the two lucrative sectors. In April, Equity Bank and two other service providers acquired mobile virtual-network operator licences to enable them to roll out the mobile banking solution. A consumer lobby has contested these licences in court, arguing that they were issued ‘without

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public consultation’ and before the banking regulator, the Central Bank of Kenya, granted approvals. The other two licences went to Mobile Pay Limited, owned by Tangaza Money, and Zioncell Kenya. This will heighten the battle for control of mobile money in Kenya. RISK-TAKERS Despite the onslaught by banks and other operators, Safaricom is still clocking up millions of dollars from M-Pesa. In the year ending March 2014, the company said M-Pesa revenues hit $305.2m, up 21.6% from the previous year. Equity’s rivals, mainly Kenya Commercial Bank (KCB, #60) and CBA, want to get a bigger slice of the mobile money business. CBA’s M-Shwari platform has attracted new customers to THE AFRIC A REPORT

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the bank, allowing it to overtake Equity Bank in the number of borrowers: CBA closed 2013 with at least 897,000 loan accounts compared to Equity Bank’s 840,000 borrowers. It is worth pointing out, however, that today CBA is still far less profitable than Equity, which ranks second after KCB. Some of this may be due to the difficulty of controlling risks with mobile credit. At a briefing in February, CBA admitted that 140,000 M-Shwari customers had defaulted on their loans. Borrowers are expected to pay their 7.5% interest at the end of a 30-day period or be rolled over for another month at 7.5%. After this they are struck off the register and banned from using the service. KCB runs two mobile banking platforms – Mobi Bank and M-Benki – which

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“A COLD COCA-COLA AND SOME CASH PLEASE”: M-PESA CHILLS OUT THE KENYAN BANKING EXPERIENCE

allow customers to transfer money from their bank accounts to their mobile phones and vice versa. They can also transfer money to other bank accounts, whether with KCB or any other lender. The court case aside, Equity Bank says it hopes to partner with other banks in expanding the use of the new service. This will deepen the country’s payments systems, which are increasingly shifting to mobile phones. In its partnership with Airtel, Equity Bank will lease up to 60% of the telcom’s network capacity, and Airtel will issue its subscribers with the bank’s branded ●●● SIM cards.

INNOVATION

THE SPREAD OF MOBILE MONEY

SOURCE: QZ.COM

Planned 1 2 3 4 5 or more mobile money services

Given that four years ago the bank ventured into a similar product in collaboration with Safaricom, but which flopped, the market will be watching keenly how this innovation plays out. Equity Bank CEO James Mwangi believes the product cannot suffer the same fate as the doomed M-Kesho: “We now have control over the infrastructure. We have removed the middleman and, therefore, cannot blame anybody for the pricing of our products,” he said at the announcement of the partnership with Airtel in May. “Equity is primarily a financial services provider, not a telecoms operator. All we have done with the mobile virtual networks is to digitise 12 of our existing products and offer another channel for financial transactions.” ●●●

operational M-Pesa might be forced to review its pricing; in the medium-term we expect M-Pesa to retain a significant portion of its market share riding on its expansive agent network,” said analysts at Standard Investment Bank. And the rest of East Africa is catching up. More firms seek to play in the space, especially in Tanzania, Uganda and Rwanda, where competition among mobile operators to dominate the mobile money-transfer services market is broadening at a quicker pace. Some players are teaming up in efforts to provide cross-platform services. In the coming months, the Bank of Tanzania is expected to release new regulation to increase oversight on mobile payments, and to make it mandatory for mobile-phonecompaniestooffermoney transfer services across networks. Tanzania has 31.8m registered mobile money accounts but only a third are active. Vodacom is the market leader with 5 million customers using M-Pesa, while Tigo Pesa is second with an estimated 3.4 million subscribers, beating Airtel Money and Zantel’s EzyPesa. Recently,

BANKERS GET PROACTIVE Analysts suspect that mistrust between Safaricom and Equity Bank may have ‘killed’ M-Kesho. The authors of a recent book on the subject argue that Safaricom and Equity wanted to share revenues 50/50 but they later fell out over the profit-sharing formula. Tanzania will overtake Kenya So, is the initiative in the as the world leader in mobile battle for mobile money shiftmoney payments in 2014 ing from the telecom companies to the bankers? The banking lobby – in the form of the Kenya Bankers Tigo, Airtel and Zantel signed a partnerAssociation – is seeking a new platform ship agreement. Safaricom’s M-Pesa is that would allow real-time interbank available to customers in more than 20 Tanzania banks, and a recent report by money-transfer services. In mid-April, the lobby invited bids from firms to offer the GSM Association shows that Tanthe service that, once implemented, will zania will overtake Kenya as the world’s allow banks to compete directly with leader in money payments in 2014. The M-Pesa–whichderivesitscorecompetitvalue of mobile money transactions in ive advantage from real-time settlement. Tanzania stood at $17.7bn 2013 (equi“In our view, once the platform becomes valent to 54% of Tanzania’s GDP), much

lower than Kenya’s $21.9bn (49% percent of Kenya’s GDP) in the same year. Across East Africa customers are also paying their insurance, social security, pay-TV services, electricity bills and water bills on mobile banking platforms. In Uganda, mobile banking services have penetrated rapidly over the past two years. Banks including Bank of Africa Uganda and Barclays Bank Uganda are trying to recover lost ground by rolling out ‘mobile wallet’ products. These offer customers access to integrated banking and mobile money networks suitable for flexible cash transactions in times of crisis, and banks stand to reap big from new sources of fee income and the retention of clients that had been swayed by lower transfer charges in recent years. SECURITY ISSUES So far, MTN Uganda and Airtel Uganda have partnered with Crane Bank and Barclays to offer integrated transaction platforms to their clients, but technology-related risks are yet to be addressed. These include frequent system failures and fraud incidents experienced by local mobile money services, plus security risks tied to certain ATMs located in crime-infested areas. Lack of sufficient coordination between the banking and the telecoms regulators has complicated matters, with the latter notably trailing on risk surveillance in a fast-changing industry dominated by young users, weak fraud-control systems and relatively poor earnings among operators. Data by the Bank of Uganda shows the number of transactions in the mobile money services segment stood at 399.5m by close of December 2013, while the total value of transactions stood at $7.5bn during the period. The number of registered customers rose to 14.2 million in the same period. These trends are now being seen across the continent. The Alliance for Financial Inclusion reports that nine African countries can now claim more bank accounts created through phones than through traditional banks: they are Cameroon, DRC, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe. The race between telecoms companies and banks, and the alliances they will build between themselves, has only just begun. ●

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Jean Pierre - Wood industry

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INNOVATION

INTERVIEW

Bob Collymore CEO of Safaricom

WE DON’T SELL TECHNOLOGY, WE SELL THE APPLICATION

BRUNO LEVY/CEO FOUM JA

Call them old-fashioned, but Kenyans are still using their mobile phones for talking. The head of Safaricom, however, has other plans TAR: For the past seven or eight years people have been saying that voice will become a commodity product and data is where the money will be. Is that happening? BOB COLLYMORE: No. It’s not happening for us. For many operators, it is – European operators and many African operators, too, are seeing voice on the decline, but we are actually seeing voice grow. Our half-year results showed voice revenue growing about 17%, which came about for two reasons: one is the growth in customers – we added about 8% customer growth – and second is the investment in the network. If we get fewer dropped calls people stay on the phone for longer. Inevitably [data superseding voice] will happen, and things like Viber will start to take over. While people talk a lot about things like WhatsApp eroding the SMS revenues, we are not seeing that. What we saw is 45% growth in revenue at the half year. People don’t want to use WhatsApp, they want to use instant messaging. WhatsApp just happens to be one of the ways of doing instant messaging, but so is SMS. Now, it is not as rich, you can’t send pictures and you can’t send video, but it’s perfectly good if you want to have a chat. So what we have done is priced it so that it encourages people to use it. So

we do SMS bundles - 200 SMSs per day for KSh10 [$0.07]. If you compare that to the UK, there it is about 15p [$0.25] per SMS. We don’t sell technology, we sell the application, and the application is: “I want to chat using text.”

think it is underexploited. I don’t think anyone has really got onto the back of local content, not just for mobile phones, but for TV. The level of generation of content is very poor. That leads me to think, is this an opportunity we can start to pursue? The last time I made a statement like that, I think Bloomberg summarised it and people believed we were just about to jump straight into the content market. I think it is something we could be exploring. I don’t know how yet and I don’t have any firm plans but I believe, because local content is not adequately being addressed, that there might be an opportunity for us to work in partnership maybe, or even to get into content generation.

What is working for Safaricom in terms of data? Inevitably, for data it is social media. Social media is reasonably big in Kenya. YouTube is big. We are trying to drive search, so for example we have just launched a free Google access, but once you

“We are encouraging people to ‘shoot and share’ – to upload their video and get friends to vote for it” click and you leave the Google page, you pay. So, Facebook, WhatsApp and YouTube access. We are encouraging people to “shoot and share”, so we are continuing to try a number of experiments encouraging people to upload their video and then get their friends to vote for it, then you get prizes. Those things are still in their infancy. We haven’t really hit something where we can say “ta-dah!”

Is that a view shared across the industry? It’s not a new problem. When I was at Vodafone 10 years ago people were still scratching their heads about content and how do you deliver content? In the broadcasting field, the only local content of any use that is being generated in Kenya is news. The rest of it is just complete nonsense. You look at it and you think, there has to be an opportunity here for us to be delivering local Kenyan content, which goes beyond politics. ●

So, you’re looking at local content? Local content is very important. You hear it spoken about a lot. I THE AFRIC A REPORT

Interview by Nicholas Norbrook ●

FINANCE SPECIAL

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S E P T E M B E R 2 0 14

Côte d’Ivoire

THE RENEWAL

Côte d’Ivoire is no longer a “fragile” State. In three years, it has achieved a nearly double-digit growth rate, balanced the budget and gotten debt under control. Combined with structural reforms, good performances in strategic areas (infrastructure, agriculture, energy and social sectors), supported by the National Development Plan, have restored investor confidence. The fund managers who snatched up $750 million worth of bonds Côte d’Ivoire issued on the international market in July were on to something. Trends are expected to continue upward in the next few years, allowing the country to increase the inclusive character of its restored growth.

MESSAGE - I -

CÔTE D’IVOIRE > THE RENEWAL

Success on the financial markets Côte d’Ivoire usually turns to the West African Economic and Monetary Union (WAEMU) to close its budget gap, but in January the country, feeling strong again, tapped the euro zone’s financial market — and overshot all expectations, raising $750 million instead of the $500 million initially sought.The offer was largely oversubscribed. Over 180 subscribers offered amounts reaching $4.75 billion! Investors in the United States accounted for half the total, Great Britain 39% and the rest of Europe 9%.

Restored confidence In another sign of the international markets’ interest, the 10-year remuneration rate is 5.625% — better than Kenya’s issue in December 2013 (6.875%) and Gabon’s in June of this year (6.375%). Ivorian officials have every reason to

rejoice over the strong interest shown by the international financial community — and to stress that it confirms a high level of investor confidence in the country’s economic growth and prosperity prospects.

High growth potential In July Moody’s, the international financial ratings agency, gave Côte d’Ivoire and its bond issue a B1 positive outlook rating, followed by Fitch a few days later. Acting at the request of the Ivorian government, for the first time it hailed the country’s high potential growth rate and sound management of public accounts. The debt and budget deficit are under control. In early 2014 the World Bank took Côte d’Ivoire off its list of fragile low-income States.

The economic recovery policy the government launched just after the political crisis quickly paid off and the results will last.

Horizon 2020: the National Development Plan gathers speed With an annual economic growth rate of just under 10% for three years, compared to less than 4% between 2004 and 2010 — it even dipped below zero in 2011 — Côte d’Ivoire is one of the region’s top students. That says a lot: West Africa is growing at a faster pace than any other part MESSAGE - II -

of the continent (6.7% in 2013). The economic recovery policy the government launched as soon as the 2011 political crisis was over quickly paid off and the results will last.

Massive investment in priority sectors The Ivorian government has implemented a massive public investment policy in order to achieve emerging nation status by 2020 as well as to increase national wealth and ensure that it quickly benefits the entire population. With strong backing from the international community, investment, on target to reach the goals of the National Development Plan (Plan National de Développement, PND), has soared since 2012. In the past three years it has risen by an average of over 43% a year from 641.9 billion FCFA in 2012 to 1.314 trillion forecast in 2014.

In January it took steps to unfreeze civil servants’ pay, which had been blocked since 1988. Those measures, the estimated cost of which is put at 82.5 billion FCFA for 2014, affect approximately 212,000 workers and retirees. Although expensive, they will allow the State’s wage bill to comply with WAEMU standards (it must not account for over 35% of tax revenue) by 2019. Despite the high level of investment spending, Côte d’Ivoire aims to keep its main budget indicators under control in every area.

Private investment, up by 28.7%, and direct foreign investment (DFI), have followed the same pace. Investment spending nearly doubled from 16% of its budget in 2008 to 30% for 2014. The priority sectors include agriculture, agro-industry, energy, education, health and infrastructure, especially roads — the same that the $750 million raised in July will support.

Support for purchasing power, but budget indicators are under control Aware that the CFA franc does not stretch as far as it used to, the government raised the minimum monthly wage from 36,607 FCFA to 60,000 FCFA.

MESSAGE - III -

Sound fundamentals

Debt is under control

There is not just growth. The success of Côte d’Ivoire’s $750-million Eurobond issue on the international financial markets also owes much to its budget situation. Moody’s took the State’s solid parameters into account when determining its ratings (B and B1 with positive outlooks).

External public debt, which plummeted from 59% of GDP in 2009 to 25% in 2012, should also remain under control. With backing from the International Monetary Fund (IMF) and the World Bank, the government has implemented a new internal and external debt management strategy and taken out loans to consolidate the viability of its debt. It continued this medium-term debt reduction strategy in 2013 while strengthening management capacities.

Efficient, rigorous tax services Despite rising household spending (7.5%) fuelled by government policies to raise wages, inflation remains at 2.7%, under the 3% limit set by WAEMU. The budget deficit is also likely to hold steady, around the 2.3% forecast in 2014, according to the World Bank. State revenue has risen thanks to the reorganisation of tax services. Côte d’Ivoire has transposed WAEMU directives into its legislation by passing and promulgating organic laws on finances and a transparency code in the management of public finances. The new directives introduce major innovations, particularly results-based management.

The success on international markets confirms the high level of confidence in the country’s prosperity prospects. The spectre of default that haunted Côte d’Ivoire during the 2011 post-electoral crisis for political reasons — the elected government had no access to the Central Bank — has been definitively swept away. Today it is quite a different country that has raised funds on the international financial markets, reaping $250 million more than the amount sought.

Côte d’Ivoire in figures (% and % of GDP) 2012

2013 (est.)

2014 (forecast)

2015 (forecast)

9.8

8.8

9.1

9.2

2.7

2.9

2.7

Budget revenues

20.8

22.3

22.4

22.5

of which tax revenue

17.6

18.2

18.3

GDP growth Inflation

Budget balance

-2.6

-2

Budget of trade

10.8

5.6

3.5

1.4

(Data: national administrations and 2014 Economic Perspectives in Africa)

MESSAGE - IV -

TSI04 2014 - DIFCOM / PHOTOS : © R. VANDERMEEREN/LES ÉDITIONS DU JAGUAR UNLESS OTHERWISE NOTED.

CÔTE D’IVOIRE > THE RENEWAL

INNOVATION

MORTGAGES

NIGERIA LOANS FOR LESS Red tape and high interest rates have kept mortgages out of reach for a majority of Nigerians. Now sector reform and national and state-run schemes should boost the number of homeowners

nyi, 35, lives in Lagos and has been trying to get a mortgage for a while. Her struggle echoes the challenges facing Nigeria’s housing sector. The National Housing Fund (NHF), managed by the state-owned Federal Mortgage Bank of Nigeria, is her best bet, because it offers the best interest rates. But getting financing from the fund, even after fulfilling the requirements for eligibility, takes a while: between 12 and 24 months at least. “TheNHFfeelslikeahush-hushthing,” she says. “Meanwhile it’s supposed to be availabletoeveryNigerianofworkingage.” So, while waiting, she has turned to the next best option: a private mortgage bank. That should take less time than the NHF, but there’s one intimidating drawback: the “ridiculously high” interest rate, typically a minimum of 18% per annum, compared to the National Housing Fund’s 5%. Still, she has decided to brave it. Her plan is to arrange a private mortgage for now (because the property she’s set her eyes on won’t wait for the NHF loan to go THE AFRIC A REPORT

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FINANCE SPECIAL

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through), and then switch to the NHF’s funding when it eventually arrives. Complicated, but better than nothing – if she can get it to work. The sad reality for her is that even the process of getting the expensive private bank mortgage has stalled.Thedevelopersofthepropertyhave had problems convincing the mortgage bank that the title to the land they were developing was genuine. “The mortgage bank said they couldn’t verify the papers with the state government,” Enyi says. Experts say the lack of efficiency and transparency around land-titling is one of the most debilitating issues affecting the housing sector in Nigeria. Ruth Obih, CEO of 3Invest, a real estate consultancy, points out that there are dozens of procedures required to register a piece of land, courtesy of a cumbersome landuse legislation dating back to the late 1970s, which vests ownership of all land inNigeria’sfederalandstategovernments – and ensures that formalities are tied up in corrupt and tardy bureaucracies. When she worked as a conveyancing lawyer in the UK, Obih was used to com-

S E P T E M B E R 2 0 14

pleting land registration procedures in weeks. In Nigeria, she laments, it takes years. Red tape combines with high interest rates, short repayment schedules (20-year mortgages are rare, making monthly repayments high) and an unfriendly legal system (inadequate foreclosure laws) to compound the problem. WHERE ARE THE HOUSES? But arguably the biggest issue is the availability of houses. For decades home constructionhaslaggedwellbehinddemand, so that Nigeria’s housing deficit – the number of houses that need to be built to ensure that everyone has access to one – is now estimated at 17m. It’s hard to talk about a housing finance market without houses, Obih says. At a housing summit in Abuja earlier this year, finance minister Ngozi Okonjo-Iweala said that Nigeria’s housing finance market constitutes only 1% of GDP, a negligible figure compared to the US and UK (upwards of 75%), Hong Kong (50%) and Malaysia (32%). Analysts estimate a functioning housing finance market in Nigeria will boost annual economic growth by as much as a tenth. Withtheacuteshortageofhouses,even ifindustry-wideinterestratesweretofallto single digits and legal knots miraculously

GWENN DUBOURTHOUMIEU FOR JA

NEW STATE-RUN MORTGAGE SCHEMES PUT A GLIMMER ON THE HORIZON FOR NIGERIANS WANTING TO OWN A HOME

INNOVATION

dissolve, there would still be a problem. Developers in Lagos are disproportionately targeting the luxury market; the high rental and sale prices – in many cases denominated in dollars – are their only insurance in a very high-risk market. The financing end of the market has also struggled for years to get it right. In 2012 the central bank announced plans to reform the sector, in a manner similar to what was done to Nigeria’s commercial banks in 2004. SURVIVAL OF THE FITTEST At the beginning of July the verdict emerged. Only 36 of the hundreds of primary mortgage institutions (PMIs) made it over the new capitalisation hurdles: 10 are licensed to operate nationally; the rest have been given regional mandates. Those that failed will be delisted, and the fate of depositors is unclear. Enyi says she is currently trying to recover her deposit from one of the PMIs. “It’s a very unsettled industry right now,” Obih says. But it’s not all gloomy news. Analysts expect that recapitalised mortgage banks will be in a better position to provide cheaper financing. And a new entrant to the mortgage market promises to be a game-changer: the Nigeria Mortgage Refinance Company (NMRC), launched by President Goodluck Jonathan in January 2014 to provide cheap financing to the PMIs,enablingthemtocreatemoremortgages. The company has been likened to America’s Fannie Mae and Freddie Mac, which, until they fell into distress following the subprime mortgage crisis, considerably swelled the country’s class of homeowners.

The federal government is not alone in optimistic for the future. “A system that its quest to transform the housing sector can support some people will ultimately in Nigeria. State governments are also support more people,” he said. “I’m rolling out schemes to encourage activconfident that whether I’m here [as ity. In Ogun State, the government last governor] or not, as many people who want to own a home in Lagos, and who December launched a scheme to fasttrack the vital “certificates of occupancy” are working, will do so.”He stresses that for people who have already built on it’s not only salaried workers who stand to benefit from HOMS, an important their land (typically C of Os don’t come clarification to make in a city where the for years; land owners have to make do informal businesses – traders, artisans, with temporary certification). freelancers – are estimated to account And in Lagos, there is a new staterun mortgage scheme. The Lagos Home for as much as 80% of the economy. Ownership Mortgage Scheme (HOMS) For Dare Okusanya who, even though launched in February provides a 10-year he currently works as a banker in Lagos, mortgage option at 9% interest. The houses are built by the state The Lagos state-run scheme through the Lagos Mortgage is delivering 200 homes monthly; Board, while the financing is allocation is by a public draw handled by the Lagos Building Investment Company (LBIC). doesn’t want to live in the city, other All of the funding, state governor Babatunde Fashola has said, comes from taxoptions have to be explored. The one payers. “We have not borrowed one kobo he seems set to settle for is the one most to fund the scheme,” he says. common across Nigeria: self-financing of home construction through one’s Construction work is ongoing at 23 income and savings. sites across the state, delivering, at the moment, 200 homes monthly. Because GOING IT ALONE the number of applicants exceeds the He owns a plot of land in Oyo State, two number of available houses, a monthly draw is held publicly.“ You don’t need to hours drive north of Lagos, in southknow anybody [to qualify],” Fashola told western Nigeria, where he plans to build the crowd at the July draw, an attempt to his house. dispel the belief common among NigeriLike Enyi, he once had his eyes on the ans that all allocation schemes are rigged housing fund, even moving forward to to favour those who have connections. make the necessary down payment. “I Fashola acknowledges that the prowanted the Federal Mortgage Bank of gramme is a drop in the ocean, but is Nigeria financing because the interest rate is reasonable,” he says. But after about eight months he gave LAGOS DEVELOPERS ARE TARGETING up and asked for a refund, which he’s THE LUXURY MARKET TO MAKE since collected. “I’ve tried to go ahead MORE PROFIT AND TAKE FEWER RISKS on my own to start building on the land. With the little I have I’ve been doing it gradually.” But the prospects for the housing finance sector are great, says Obih, both with the reforms and the NMRC, which should ultimately drive down interest rates and extend loan tenors. No doubt it will take a while for ordinary Nigerians like Enyi and Okusanya to feel its effects. Until cheap financing becomes widely available most will have to settle for the long, hard and uncertain slog of self-developing and self-financing. “[For now] it’s better for you to amass the money and do whatever you want to do with it, than to go for credit,” Okusanya says. ● GWENN DUBOURTHOUMIEU FOR JA

THE AFRIC A REPORT

Tolu Ogunlesi in Lagos ●

FINANCE SPECIAL

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S E P T E M B E R 2 0 14

TOP 200 BANKS

FINANCE

RECOVERY HITS Southern Africa weighs down the continent but assets are meagre elsewhere. As an era of cheap money ends bankers are looking to innovations to attract the unbanked and increase deposits

A ROUGH PATCH By Gemma Ware

CHRISTIAN KASONGO/JA; FOTOLIA

n overall slowdown in the growth of Africa’s biggest 200 banks belies a more complicated picture of regional ups and downs. Despite the entry of newcomers lured by large populations with very limited access to financial services, a clutch of pan-African giants looks set to continue its dominance, especially in the face of a global tightening of the supply of capital. Taking the continent as a whole, the biggest banks experienced their own double dip. The total assets of Africa’s top 200 banks in our 2014 rankings, which is based on banks’ 2013 results, stood at $1.39trn, down 3.9% on the previous year. This marks a reversal of the recovery that banks in our ranking experienced between 2011 and 2012, when their assets grew by 5.7%, after a couple of years of struggle following the financial crisis in the US. The poor performance was led by Southern African banks, which represent 46% of the assets in the top 200. They experienced a big decline in their assets – falling 8.7% to $638.8bn in 2013 from $699.8bn in 2012. Excluding the assets of banks from Southern Africa, the remaining banks in the top 200 grew their assets by 0.6% from 2012 to 2013. This matches trends observed by bank analysts. Ronak Gadhia, Africa equity research analyst at London-based securities house Exotix, says that Exotix’s statistics for the big banks – excluding South Africa – show that “total assets for African banks have consistently and significantly grown since 2010.” The regional disparities do not detract from the wider picture of long-term

TOP 200 BANKS

growth in African banking. The total assets of the top 200 largest banks grew by 29% from 2008 to 2013. As part of that trend, the total loan book of the banks in the top 200 rose by 40.7% between 2008 and 2013 to $751.5bn. Deposits grew 34.2% over the same period to $969.6bn. Despite the slowdown, the top 200 banks have continued to raise their net interest income – the difference between interest paid on loans and deposits. It has risen every year since 2010. It grew by 45% since 2010, to $60.9bn in 2013. Yet even regions that had seemed to be growing at the fastest pace recorded slowdowns last year. The total assets of the top East African banks, which grew every year since 2008, experienced a 5.2% drop between 2012 and 2013. In Central Africa, which is starting from a low base, asset growth slowed from 33.7% between 2011 and 2012 to 2.2% between 2012 and 2013. CURRENCY DEPRECIATIONS Africa’s gross domestic product is set to increase by 5.5% in 2014 according to the International Monetary Fund (IMF), but it warns that banks could face more risk from a tightening of global financial conditions and a withdrawal of the cheap money from the West that foreign investors have poured into emerging markets. In its April 2014 economic outlook the IMF cautioned that banks that lend in foreign currency could “experience an increase in non-performing loans if large currency depreciations reduce their borrowers’ repayment capacity”. Any impact on real estate from a flight by foreign investors may also hurt banks. Sridhar Nagarajan, the chief executive of Standard Chartered Bank Mauritius, argues that Africa’s banks “stand to benefit from the continent’s positive economic growth”, pointing to innovations such as mobile banking and more sophisticated financing structures. East Africa has been the testing ground for a lot of the continent’s innovations in mobile and agency banking – where agents act as intermediaries to cut costs. It is still early days, but Kenya recorded a 13.3% increase in customer deposits between 2012 and 2013 as a result (see page 96). Some established global brands are moving to expand their operations in Africa too. After a partnership with South Africa’s First National Bank (#12) in 2011, PayPal, the online payment plat-

CHANGE IN TOTAL ASSETS (% and US$) Top 5 winners

633.62%

135.22% 118.72%

45.71%

4 358 185 AFRICAN EXPORTIMPORT BANK (Egypt)

45.02%

1 517 589

750 932

627 500

1 275 044

STANDARD BANK DE ANGOLA (Angola)

ORABANK TOGO (Togo)

BANK OF AFRICA (Mali)

BANK ATLANTIQUE CÔTE D’IVOIRE (Côte d’Ivoire)

AFRICAN BANK (South Africa)

Top 5 losers BGFIBANK GUINÉE ÉQUATORIALE (Equatorial Guinea)

649 025 -24.15%

SBI MAURITIUS (Mauritius)

STANDARD BANK OF SOUTH AFRICA (South Africa)

MERCANTILE BANK (South Africa)

981 086

96 711 490

-19.46%

-16.16%

720 359 -13.68%

6 064 856 -12.90%

Top 200 asset breakdown Southern Africa

North Africa

1 199 383 166

1 374 943 354

2010

2011

West Africa

1 368 293 495

East Africa

1 447 556 952

2012

form, partnered with EquityBankKenya (#86) in 2013 and launched operations in Nigeria in July with the support of First Bank of Nigeria (#14). African banks made a 24% return on capital in 2013 – double the average for the rest of the world – according to The Banker magazine. Exotix’s Gadhia says these returns are driven by high interest rates – many African treasury bond interest rates are in the mid-teens – and low levels of competition. The total profits of the banks in our top 200 list that provided data was $19.8bn. Of this, 47% came from the top 10 most profitable banks.

Central Africa

1 391 271 555

2013

2014

Standard Chartered’s Nagarajan says it is important to take into account the breadth and depth of financial systems in developed economies before making comparisons. “The risk profile of the African markets, barring a few, is considerably high, requiring a higher return on capital,” he says. He expects that as markets mature in Africa, “the returns are bound to converge to global averages, as we have seen in the Asian markets since the 1990s.” When it comes to African loans and deposits, the growth in both has stagnated. Loans made by the top ● ● ●

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 14

Financial Institutions

African Banks: Challenge us! A strong and committed partner for financial institutions Did you know? Commerzbank is the leading bank for private and corporate clients in Germany â&#x20AC;&#x201C; the largest and fastest growing economy in Europe among the TOP 3 export countries in the world. Thanks to its relationship-driven approach combined with a clear commitment to financial institutionsâ&#x20AC;&#x2122; business, Commerzbank has built up an impressive network with more than 600 accounts for African financial institutions. We are your partner for financial services worldwide. Experience how partnership meets expertise! www.fi.commerzbank.com fi.africa@commerzbank.com

TOP 200 BANKS

200 banks grew 0.3% from 2012 to 2013, while deposits rose by 0.1%. Again, these headline numbers hide a more complicated regional picture. In North Africa, which has seen slow growth in deposit-taking since the Arab Spring, there was 8.6% growth in deposits in 2013. Deposits in West Africa also grew by the same amount. Southern Africa’s banks dragged the overall figure down, with a 8.4% decrease. The same regional story is present for loan books. An 8.4% drop in loans in Southern Africa was counterbalanced by 5.2% growth in North African loan books and 22.5% growth for West African loans.

●●●

SOUTH AFRICA LOOKS OUTSIDE Questions remain about the health of South Africa’s loan books and high levels of household debt. Troubles at African Bank (#41), while isolated, have shaken confidence in unsecured loans (see page 106). A highly competitive market with a sluggish economy has left South African banks looking outside the country to expand their revenue bases. Sustained growth has created new opportunities for local businesses to cater to middle-classconsumers.“Theexpansion plans of local indigenous companies are becomingmoreambitiousand,unlikethe multinationalcompanies,theyareraising capital locally – either from banks or the capital markets,” says Gadhia. Banks are teaming up because of the amounts of borrowing needed and the risk attached to it, offering syndicated loans to companies such as the Dangote Group and Oando in Nigeria. In 2013, there were 60 of these syndicated loans in sub-Saharan Africa, up from 28 in 2010. Banks from India and China are also eyeing opportunities in the region, following the lead of their compatriots. In July, ICICI Bank, India’s second-largest bank, announced plans to convert its representative office in Johannesburg into a fully fledged bank and open operations in Mauritius. But Gadhia says the dominance of the African financial sector by five or six large banks, which typically have 50-60% of the market share, is unlikely to be disrupted by new entrants such as Atlas Mara. “We think their position is unlikely to be challenged unless the new entrants have a significant capital base to either be a big player in the corporate market or roll out a large branch network,” he concludes. Time will tell, but for now the status quo looks set to endure. ●

LOANS AND DEPOSITS BY REGION North Africa

$ bn

West Africa

Central Africa

East Africa

Southern Africa

Total loans

800 700 600 500 400 300 200 100 0

Total deposits

1 200 1 000 800 600 400 200 0

Total interest income

80 70 60 50 40 30 20 10 0

2009

2010

2011

2012

2013

2014

METHODOLOGY How we compile our rankings TO COMPILE OUR RANKING of Africa’s top 200 banks, we sent out detailed questionnaires to more than 900 financial institutions based on the continent. We used their replies to create a systematic ranking of Africa’s top banks based on total asset size. We

publish only the top 200 banks in our list. All the data is communicated to us by the banks themselves or their parent companies. The numbers relate to the 2013 financial year. Where that information was unavailable we used 2012 figures, which are marked THE AFRIC A REPORT

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as such. The data was converted to US$ using the exchange rates applicable on 12 December 2013 for a consistent comparison. Numbers in the ‘Rank 2012’ column refer to a bank’s position in The Africa Report’s ranking of September 2013. ●

FINANCE SPECIAL

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S E P T E M B E R 2 0 14

TOP 200 BANKS

RANK ’13

DIFF.

RANK ’14

RANKINGS 2014 1-40

The bank plans to open in one other country – probably Tanzania, Mozambique or Angola – to deepen its retail banking in that region”

NK BA

BANK NAME

Segun Agbaje, CEO of Guaranty Trust Bank (#21)

COUNTRY

- Standard Bank Group

South Africa

TOTAL ASSETS

161 296 694

NET INTEREST INCOME

LOANS

DEPOSITS

6 988 251 85 620 500 93 941 551

- Standard Bank of South Africa

South Africa

96 711 490

4 925 267 67 108 289 68 672 520

- Barclays Africa Group (ex-ABSA Group)

South Africa

91 391 905

3 079 815 57 628 082 55 978 647

- FirstRand Group

South Africa

82 792 489

2 352 868 57 022 420 66 354 876

- Nedbank Group

South Africa

71 361 349

2 020 144 55 156 214 57 401 030

- National Bank of Egypt

Egypt

61 190 260

1 016 577 16 784 469 53 068 640

- Attijariwafa Bank

Morocco

46 631 991

2 162 098 30 325 691 28 736 301

- Groupe Banque Centrale Populaire

Morocco

35 108 761

1 594 110 24 167 077 25 396 312

- Banque Misr

Egypt

31 199 163

944 218

6 969 368 27 005 124

+1 Banque Marocaine du Commerce Ext.

Morocco

28 626 135

1 196 218 18 065 413 17 994 663

+2 Banque Nationale d'Algérie

Algeria

27 845 733

1 000 046 16 763 898 19 088 832

South Africa

27 019 543

- First National Bank South Africa* -3 Banque Extérieure d'Algérie +1 First Bank of Nigeria -1 Ecobank Transnational Inc. +5 Crédit Populaire d'Algérie -1 Zenith International Bank*

982 383

Algeria

26 599 000

575 000 17 568 000 21 684 000

Nigeria

23 806 656

1 415 207 10 880 150 18 013 848 1 050 758 11 421 605 16 489 904

Togo

22 532 453

Algeria

17 357 460

491 789

8 680 144 13 043 581

Nigeria

16 642 781

1 001 677

6 482 821 12 327 869

- Commercial International Bank

Egypt

16 267 712

722 166

5 983 246 13 863 428

- United Bank for Africa Group

Nigeria

16 250 120

942 980

5 766 363 13 291 269

-3 Zenith Bank Nigeria*

Nigeria

15 571 702

1 337 395

5 721 312 11 514 831

+3 Guaranty Trust Bank

Nigeria

12 932 505

1 183 237

8 779 086

8 872 617

+4 Qatar National Bank Al Ahli (ex-NSGB)

Egypt

11 620 828

116 455

5 561 865

9 679 830

Nigeria

11 288 116

276 728

4 986 110

8 188 225

+1 Banco Angolano de Investimentos

- Access Bank Group

Angola

10 625 663

580 334

2 511 134

9 228 006

+3 Société Générale Maroc

Morocco

9 897 609

489 444

7 819 255

6 526 406

36 +10 Diamond Bank

Nigeria

9 340 971

643 462

4 238 383

7 417 171

39 +12 Ecobank Nigeria

Nigeria

9 232 000

469 800

3 918 000

7 001 000

+7 Banco de Fomento Angola

Angola

8 871 289

436 962

1 567 281

7 798 117

+2 HSBC Bank Egypt*

Egypt

8 590 114

486 436

3 119 956

7 522 132

+3 Arab African International Bank*

Egypt

8 197 044

202 299

3 412 043

5 970 838

+1 Banque Marocaine pour le Comm. et I’Ind. Morocco

8 104 537

378 788

6 305 439

5 352 388

+6 Banco BIC*

6 914 226

176 552

2 578 540

5 473 426

+7 Skye Bank

46 +12 Fidelity Bank

Angola

+8 Faisal Islamic Bank of Egypt

Nigeria

6 867 311

379 443

3 381 627

5 063 449

Nigeria

6 649 485

189 494

2 620 367

4 958 868

Egypt

6 486 184

264 251

2 731 769

5 820 910

50 +14 The Mauritius Commercial Bank

Mauritius

6 262 523

308 720

4 436 287

4 817 323

47 +10 First City Monument Bank

Nigeria

6 200 923

345 222

2 770 778

4 398 567

Nigeria

6 166 949

353 139

1 411 683

2 968 642

+3 Union Bank of Nigeria

49 +10 Crédit du Maroc

+5 BGFIBank Holding Corporation

Morocco

6 076 945

250 835

4 455 729

4 449 488

Gabon

6 076 304

393 821

4 242 356

4 901 494

2013 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2012 RESULTS

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

S E P T E M B E R 2 0 14

TOP 200 BANKS

DIFF.

RANK ’13

RANKINGS 2014 41-80 RANK ’14

BANK NAME

-4 African Bank

53 +10 Groupe Bank of Africa*

- Bank of Alexandria

The top 20 employees at Egypt’s Bank of Alexandria (#42) secured an unprecedented salary increment in the first four months of this year, receiving an average monthly salary of E£2.5m ($350,000)

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

LOANS

DEPOSITS

South Africa

6 064 856

Egypt

5 852 007

341 982

2 803 205

4 851 525

Mali

5 796 172

397 757

2 960 927

4 265 375

5 513 063

277 753

3 499 749

4 476 582

+7 Banque Internationale Arabe de Tunisie Tunisia

1 070 355

5 738 740

2 373 371

+9 Société Tunisienne de Banque*

Tunisia

5 065 245

142 189

3 707 206

3 654 203

+6 Banque Nationale Agricole*

Tunisia

5 050 731

189 288

4 105 972

3 364 002

61 +14 Crédit Immobilier et Hôtelier

Morocco

5 012 957

209 269

3 844 709

2 686 321

58 +10 Stanbic IBTC Bank

Nigeria

4 692 733

227 630

2 361 151

2 878 434

60 +11 Amen Bank

Tunisia

4 568 334

160 532

3 463 865

3 131 970

+6 Crédit Agricole Egypt*

Egypt

4 471 680

158 638

2 036 141

3 624 382

+8 Kenya Commercial Bank Group

Kenya

4 451 799

375 691

2 593 751

3 481 458

+5 HSBC Mauritius

Mauritius

4 449 677

67 728

2 683 492

3 149 765

+2 Capitec Bank

South Africa

4 397 380

694 967

2 861 031

3 374 714

Egypt

4 358 185

89 079

3 487 002

216 373

54 194 +140 African Export-Import Bank 55

+7 Sterling Bank

Nigeria

4 352 953

220 248

1 978 724

3 508 643

+7 Arab Bank for Economic Dev. in Africa

Sudan

3 901 795

210 898

+7 Banque de l'Habitat*

Tunisia

3 860 301

133 312

2 852 115

2 418 255

68 +10 Afriland First Group

Cameroon

3 748 421

187 089

1 978 173

2 902 476

72 +13 Barclays Bank Mauritius

Mauritius

3 714 211

50 242

1 246 923

3 011 524

+5 Kenya Commercial Bank

Kenya

3 682 529

458 984

2 259 435

2 701 854

+9 Land and Ag. Dev. Bank of South Africa*

South Africa

3 626 736

94 878

3 177 456

+7 State Bank of Mauritius

Mauritius

3 553 008

297 144

2 237 377

2 649 891

+3 Standard Chartered Bank Mauritius*

76 +12 Standard Chartered Bank Nigeria

86 +21 Atlantic Business International

- Bank Audi (Egypt) +7 Equity Bank Group

+7 Attijari Bank

80 +11 BNP Paribas El Djazaïr

+1 Arab Tunisian Bank*

+3 NBK-Egypt (ex-Alwatany Bank of Egypt)

82 +10 Société Générale Algérie

87 +14 Banco Internacional de Moçambique

92 +17 Banco Comercial e de Investimentos

+9 BGFIBank Gabon

+1 Suez Canal Bank* - Banque Sahélo-Saharienne Inv. Comm.

Mauritius

3 426 600

53 023

1 075 143

624 827

Nigeria

3 394 381

277 797

2 327 918

2 815 634

Côte d'Ivoire

3 391 366

182 148

1 933 785

2 001 866

Tunisia

3 326 729

164 317

2 374 529

2 550 252

Egypt

3 239 144

1 559 261

2 836 595

Kenya

3 163 333

301 732

1 951 825

2 222 793

Algeria

2 979 478

165 365

1 401 948

2 400 878

Tunisia

2 967 811

102 094

1 611 272

2 284 756

Egypt

2 916 781

97 567

954 586

2 496 145

Algeria

2 835 994

186 837

1 438 573

2 320 415

Mozambique

2 833 655

266 672

1 688 022

2 209 029

Gabon

2 758 251

154 422

2 104 430

2 332 399

Mozambique

2 725 507

172 195

1 500 492

1 991 798

Egypt

2 717 490

Libya

2 671 072

127 320

917 359

1 636 885

78 100 +22 Co-operative Bank of Kenya

Kenya

2 633 543

317 665

1 561 424

1 998 092

Egypt

2 608 710

2 222 424

2 588 087

92 119

716 170

2 041 556

- Al Baraka Bank Egypt

+1 Société Arabe Internationale de Banque* Egypt

2013 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2012 RESULTS

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

S E P T E M B E R 2 0 14

Your Bank in Angola. More than 175 Branches More than 1,2 million Clients Province of

Cabinda (7 Branches)

Luanda

(107 Branches)

Soyo

Cacuaco

Uíge (2 Branches)

City of Luanda

Dundo

Negage

N’zage

Caxito Province of Luanda Viana

Catete

Belas

Lucapa N’dalatando

Porto Amboim

Dondo

Waku-Kungo Luena

Bailundo Kuito Lobito Huambo (10 Branches) (4 Branches) Ganda Caála Cubal Caconda

Lubango (8 Branches) Namibe

Saurimo (2 Branches)

Malanje

Gabela

Sumbe

Catumbela Benguela (6 Branches)

Cacuso Calulo

Menongue

Matala Chibia

Tômbua Ondjiva

Santa Clara

BFA is growing with Angola. With 16 Corporate Centres, 9 Investment Centres and 154 Agencies across the country it now serves more than 1 million Clients. With a competitive and wide range of financial services available and a commercial network that reaches almost every part of the country, BFA is growing to meet all its Clients needs wherever they are and wherever they want to reach. For further information on how to start or strengthen your business relations with Angola, visit any BFA Agency, Corporate Centre or Investment Centre or browse www.bfa.ao

TOP 200 BANKS

DIFF.

RANK ’13

RANKINGS 2014 81-120 RANK ’14

The major concern remains with our customers in the construction industry where payments have not been forthcoming for various contracts” I&M

Arun S. Mathur, CEO of Investment & Mortgages Bank (#115)

K BAN

BANK NAME

+3 Ahli United Bank Egypt*

COUNTRY

Egypt

TOTAL ASSETS

NET INTEREST INCOME

2 484 575

LOANS

DEPOSITS

1 187 370

+9 Unity Bank*

Nigeria

2 427 878

1 188 539

1 681 153

+2 Banque de Tunisie

Tunisia

2 412 666

113 369

1 927 720

1 689 982

95 +11 Export Development Bank of Egypt

Egypt

2 373 560

62 323

916 795

1 785 654

85 102 +17 Barclays Bank of Kenya

Kenya

2 354 757

214 815

1 348 143

1 721 314

Kenya

2 325 264

184 701

1 379 178

1 879 434

+3 Equity Bank Kenya*

+3 Abu Dhabi Islamic Bank-Egypt*

Egypt

2 297 680

2 064 233

+9 Union Internationale de Banques

Tunisia

2 283 962

115 991

1 987 138

1 864 157

+4 Standard Bank Mauritius*

Mauritius

2 274 479

18 982

408 523

1 539 402

+4 Standard Chartered Bank Kenya*

Kenya

2 265 659

159 135

1 305 003

1 627 278

+8 Commercial Bank of Eritrea*

Eritrea

2 224 528

19 392

72 849

2 082 627

+9 CRDB Bank

Tanzania

2 162 717

1 215 795

1 809 655

92 101

93 107 +14 CCEI Bank GE

Equatorial Guinea

2 153 663

108 980

1 124 139

1 800 839

Namibia

2 141 947

91 544

1 615 037

1 793 156

-6 First National Bank of Namibia

95 125 +30 Banco Sol

Angola

2 103 685

95 929

775 720

1 864 894

Egypt

2 086 852

78 186

861 368

1 268 382

Kenya

2 056 029

184 553

1 182 825

1 483 957

+2 Housing and Development Bank

97 113 +16 CFC Stanbic Bank 98

- North Africa Bank

Libya

2 035 550

11 805

145 908

1 120 920

- Wema Bank

Nigeria

2 034 866

77 025

606 586

1 339 068

100 103

+3 Banque Al Baraka d'Algérie

Algeria

2 001 110

98 862

798 034

1 598 042

101 109

+8 National Microfinance Bank

Tanzania

2 000 913

270 349

984 718

1 575 401

Namibia

1 964 861

126 620

1 680 467

1 256 310

102

103 111

-6 Bank Windhoek +8 Banco de Negócios Internacional

104 124 +20 Oragroup SA 105 105

1 882 278

60 750

878 550

1 364 367

1 852 852

126 592

1 119 630

1 164 003

Angola

1 827 232

87 334

642 575

1 227 920

106 128 +22 Ecobank Ghana*

Ghana

1 818 991

230 195

741 013

1 307 760

107 110

Botswana

1 799 000

162 460

1 203 000

1 391 000

108 106

- Banco Millennium Angola*

Angola Togo

+3 ABC Holdings

Botswana

1 780 310

101 074

1 167 966

1 456 618

109 129 +20 Gulf Bank Algeria

-2 First National Bank of Botswana

Algeria

1 770 383

134 029

1 035 009

1 167 564

110 108

South Africa

1 765 533

5 538

-2 Investec Bank South Africa*

111 115

+4 Soc. Gén. de Banques en Côte d’Ivoire

Côte d'Ivoire

1 739 518

122 041

857 719

1 465 109

112 114

+2 Union Bancaire pour le Comm. et l’Ind.

Tunisia

1 720 577

88 779

1 342 149

1 203 104

113 127 +14 Commercial Bank of Africa

Kenya

1 662 922

72 588

781 813

1 192 712

114 104

Congo

1 658 545

102 401

1 061 636

1 482 437

Kenya

1 610 138

100 178

1 046 544

1 106 488

Angola

1 578 652

141 988

546 621

690 350

Algeria

1 573 345

61 057

356 106

1 279 505

115 112 116

-10 BGFIBank Congo -3 Investment & Mortgages Bank - Banco Caixa Geral Totta de Angola*

117 116

-1 HSBC Algeria*

118 117

-1 Diamond Trust Bank Kenya*

Kenya

1 568 643

142 671

1 015 650

1 238 773

119 133 +14 CBZ Bank

Zimbabwe

1 558 667

95 268

1 028 119

1 332 564

120 184 +64 Standard Bank de Angola

Angola

1 517 589

28 987

348 521

1 307 898

2013 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2012 RESULTS

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

S E P T E M B E R 2 0 14

debates Tough talk on development

ACCRA, GHANA 21st November 2014 at Labadi Beach Hotel THE PLACE TO BE FOR AFRICAN LEADERS

High profile speakers, including Mo Ibrahim, experts and people within the audience will freely express their opinions on Africaâ&#x20AC;&#x2122;s development. www.theafricareport.com In partnership with

TOP 200 BANKS

DIFF.

RANK ’13

RANKINGS 2014 121-160 RANK ’14

BANK NAME

121 121

- Misr Iran Development Bank*

122 130

+8 CBAO Groupe Attijariwafa Bank

123

62%

- Standard Bank Mozambique*

124 118

-6 Ghana Commercial Bank

125 119

-6 Bank of Khartoum

126 144 +18 Natixis Algérie 127 131 128 126

+4 NIC Bank -2 Egyptian Gulf Bank*

129 138

+9 Investec Bank Mauritius*

130 136

+6 Société Générale Cameroun (ex-SGBC)

COUNTRY

Ghana Commercial Bank (#124) announced in March that its net profit had increased by 62% to ¢229.20m ($67.62m) for the 12 months through to December 2013

TOTAL ASSETS

NET INTEREST INCOME

LOANS

DEPOSITS

Egypt

1 490 520

32 262

603 997

985 685

Senegal

1 431 251

115 597

1 275 373

1 051 192

Mozambique

1 423 757

78 838

501 877

1 180 335

Ghana

1 418 158

243 220

401 768

1 099 984

Sudan

1 412 255

79 633

712 721

1 084 545

Algeria

1 404 443

89 200

737 485

921 813

Kenya

1 378 905

82 782

950 989

1 042 925

Egypt

1 372 011

Mauritius

1 371 598

40 977

772 245

666 854

Cameroon

1 356 993

90 136

877 853

1 044 139

Botswana

1 319 868

102 155

826 335

1 045 396

132 142 +10 Société Générale de Banques au Sénégal Senegal

1 295 315

99 107

825 732

952 905

133 137

1 286 615

99 634

671 334

1 036 300

1 286 274

83 096

748 463

808 869

131 122

-9 Barclays Bank of Botswana

+4 Banq. Int. Cam. pour l’Epargne et le Crédit Cameroon

134 147 +13 Ecobank Côte d'Ivoire*

Côte d'Ivoire

135 158 +23 Banque Atlantique – Côte d'Ivoire

Côte d'Ivoire

1 275 044

61 393

566 183

851 064

136 140

Uganda

1 264 223

96 625

551 866

697 155

Ghana

1 252 312

88 916

502 666

892 710

137 132

+4 Stanbic Bank Uganda -5 Standard Chartered Bank Ghana*

138 143

+5 Zambia National Commercial Bank

Zambia

1 252 093

99 382

536 558

990 417

139 145

+6 Bank of Africa – Bénin*

Benin

1 241 915

65 962

449 128

805 184

Mauritius

1 241 457

5 967

488 130

936 931

141 123

140

-18 Faisal Islamic Bank Sudan

Sudan

1 220 620

46 772

814 934

1 051 237

142 120

-22 Piraeus Bank*

Egypt

1 218 354

- Bank of Baroda – Mauritius

143 139

-4 Afriland First Bank*

Cameroon

1 152 630

50 137

483 254

929 945

144 141

-3 Deutsche Bank Mauritius*

Mauritius

1 137 646

3 143

508 192

810 405

145 135 146 148

-10 Standard Chartered Bank Botswana +2 Arab Banking Corporation – Egypt

147 167 +20 National Bank of Kenya 148

149 152 150 146 151 153

- Diamond Bank Benin +3 BIAO Côte d'Ivoire -4 Barclays Bank of Ghana* +2 Dashen Bank

Botswana

1 129 931

113 438

708 249

888 901

Egypt

1 054 699

19 251

248 122

856 058

Kenya

1 054 210

64 218

450 664

888 338

Benin

1 051 485

47 671

479 177

721 447

Côte d'Ivoire

1 036 189

72 465

641 395

852 212

Ghana

1 035 209

107 252

371 355

761 799

Ethiopia

1 019 744

68 522

447 370

818 559

Mauritius

1 007 528

23 200

447 127

869 001

153 176 +23 Société Ivoirienne de Banque

Côte d'Ivoire

1 000 478

69 566

620 248

760 383

154 149

Zambia

982 430

72 737

499 165

766 334

Mauritius

981 086

25 556

698 658

660 588

152 175 +23 AfrAsia Bank

155 134

-5 Standard Chartered Bank Zambia -21 SBI Mauritius

156 151

-5 National Bank of Commerce

Tanzania

968 420

97 065

417 173

794 449

157 150

-7 Stanbic Bank Zambia*

Zambia

956 823

116 595

515 030

736 790

158 173 +15 Awash International Bank

Ethiopia

918 362

45 970

388 968

647 835

159 155

Uganda

912 205

155 242

471 620

630 355

909 784

65 639

545 116

567 250

160 162

-4 Standard Chartered Bank Uganda* +2 Coris Bank International

Burkina Faso

2013 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2012 RESULTS

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

S E P T E M B E R 2 0 14

At the crossroads of Africa, the Arab world and Asia

The future is growing

An environment conducive to innovation Diversified economy Busy and reliable banking system Regional transport and telecommunications hub

DIFCOM ÂŠ : V. FOURNIER /JA - DR

Modern infrastructure

DJIBOUTI SERVING INVESTORS

TOP 200 BANKS

161 156 162 157 163 171 164 164

DIFF.

RANK ’13

RANKINGS 2014 161-200 RANK ’14

K AN NB

-5 Banque de Développement du Mali -5 Banco Regional do Keve* +8 Banque Nationale d’Investissement - Ecobank Burkina*

165 159

-6 Union National Bank Egypt* +6 Société Générale South Africa

Roland Sassoon, CEO of Sasfin Bank (#196)

FI SAS

BANK NAME

166 172

There’s no way that those big banks can provide the service that we would, because they just don’t have the staff”

COUNTRY

Mali

TOTAL ASSETS

NET INTEREST INCOME

902 611

LOANS

53 080

DEPOSITS

372 350

657 897

Angola

895 529

19 360

304 988

737 069

Côte d'Ivoire

878 637

51 136

460 290

625 110

Burkina Faso

871 689

56 371

543 264

611 458

Egypt

866 538

South Africa

863 332

8 875

726 456

805 595

167 170

+3 BICICI

Côte d'Ivoire

861 771

65 637

583 340

723 007

168 169

+1 Soc. Commerciale de Banque Cameroun

Cameroon

861 295

67 729

502 916

706 081

855 482

23 845

303 771

254 684

169 154

-15 Hongkong and Shanghai Banking Corp.* Mauritius

170 165

-5 BICIG

Gabon

855 380

59 357

427 646

516 084

171 166

-5 Banco Comercial do Atlântico*

Cape Verde

841 399

25 737

486 465

699 854

Benin

830 276

50 226

468 702

583 453

172 174

+2 Ecobank Benin*

173 178

+5 Ecobank Senegal*

174

175 182 176 161 177

178 177

- Orabank Togo +7 Rawbank -15 Mercantile Bank - Bank of Africa Burkina Faso* -1 Fidelity Bank Ghana*

179 189 +10 Exim Bank Tanzania 180 168 181 183

-12 Agricultural Development Bank +2 BICIS

182 199 +17 Soc. Gén. de Banques en Guinée Eq.

Senegal

825 691

51 620

444 335

570 603

Togo

750 932

43 569

463 004

434 283

DRC

725 360

63 350

289 280

556 040

South Africa

720 359

31 646

483 957

480 595

Burkina Faso

699 741

41 356

385 146

526 188

Ghana

698 282

72 749

346 721

566 202

Tanzania

698 052

46 043

330 075

559 013

Ghana

678 221

117 110

406 284

443 753

Senegal

675 239

59 615

500 046

538 738

Equatorial Guinea

668 933

35 135

115 324

613 037

183 188

+5 CAL Bank

Ghana

651 958

89 930

426 595

349 785

184 193

+9 Bank of Africa – Madagascar*

Madagascar

649 344

49 090

245 618

532 469

185 160

-25 BGFIBank Guinée Equatoriale

186

- Banque Internationale pour le Mali

187 197 +10 La Congolaise de Banque 188 192

649 025

50 646

245 813

584 158

648 273

32 409

335 889

525 036

Congo

632 336

38 930

285 390

558 619

Mali

630 871

50 147

328 693

358 200

189

- Caixa Económica de Cabo Verde

Cape Verde

630 205

24 537

450 770

506 205

190

- Bank of Africa – Mali

Mali

627 500

40 369

365 346

432 339

191

Congo

620 487

38 190

165 423

538 479

Cameroon

611 001

44 854

423 980

469 810

192 195

+4 Ecobank Mali*

Equatorial Guinea Mali

- Crédit du Congo +3 Ecobank Cameroon*

193 190

-3 BancABC Botswana*

Botswana

607 462

36 308

432 085

539 962

194 191

-3 ABC Bank Algeria*

Algeria

606 185

40 889

256 852

317 943

595 396

32 857

334 130

342 160

195

- Société Générale Burkina Faso (ex-SGBB) Burkina Faso

196 185

-11 Sasfin Bank

South Africa

595 266

20 964

315 039

205 741

197 181

-16 Banque des Mascareignes

Mauritius

593 176

19 229

484 573

375 648

198

- Banque Nat. de Développement Agricole Mali

589 760

48 736

341 885

373 008

199

- Ecobank Togo*

Togo

584 176

39 503

289 919

425 727

200

- Banque Commerciale du Congo

DRC

581 536

82 438

232 805

454 810

2013 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2012 RESULTS

THE AFRIC A REPORT

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TOP 200 BANKS

EAST AFRICA TECHNOLOGY THE KEY TO RETAIL SURVIVAL In a bid to win clients, lenders are aiming for a supermarket banking model, while also touting lower charges and faster processing times for online transactions

COUNTRY

PROFITS ($m)

BANK NAME

TOTAL ASSETS ($bn)

Top 10 East African Banks RANK IN TOP 200

51 KCB Group Kenya 56 Arab Bank for Ec. Dev. Africa Sudan

4.4 163 3.9 0.128

60 Kenya Commercial Bank

Kenya

3.7

142

68 Equity Bank Group

Kenya

3.2

151

78 Co-operative Bank of Kenya

Kenya

2.6

104

85 Barclays Bank of Kenya

Kenya

2.4

86 Equity Bank Kenya*

Kenya

2.3

90 Standard Chartered Kenya*

Kenya

2.3

2.2 2.2

14 52

91 Commercial Bank of Eritrea* Eritrea 92 CRDB Bank Tanzania

2013 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2012 RESULTS

resh technological platforms continue to drive East Africa’s financial services sector. Lenders in Kenya – mainly Equity Bank (#68) and rivals Kenya Commercial Bank (KCB, #60), Co-operative Bank (#78), Barclays Bank of Kenya (#85) and Standard Chartered Bank Kenya (#90) – are in a fierce battle for retail and corporate customers, a war that is being fought through new models such as agency and mobile banking. KCB, Equity and Co-operative, all listed on the Nairobi Securities Exchange (NSE), have rolled out agencies across the country where clients can deposit and withdraw money without going to ATMs and branches. This has seen them slow down on opening new branches, effectively reducing operational costs. The agencies, usually manned by a single cashier, are licensed by the Central Bank of Kenya through the respective bank. Such an integrated platform of retail outlets and

mobile banking is the new frontier for growth, analysts and bankers say – a model that is being replicated across the East African region. A look at the strategic plans and recent pronouncements by the top five Kenyan banks show that the lenders are increasingly pursuing a supermarket banking model that will offer a range of financial services including bancassurance, mortgages, forex trading, diaspora banking and payments processing, with KCB and some others pursuing Islamic banking. “Medium-sized businesses provide better growth opportunities going forward, particularly those in the import trade and others supplying multinationals. This will eventually translate into strong growth potential for credit uptake and fee-related incomes. Barclays Bank, however, will struggle to catch up with peers in terms of innovation and winning back old clients,” says Kenneth Owera, an investment analyst at Stanlib Uganda, an asset management firm.

The country’s banking sector has been on a growth spree over the past few years. Data from the Central Bank of Kenya shows that the customer deposits base increased by 13.3% from $20.1bn in 2012 to $22.8bn in 2013. Loans to customers rose from $15.3bn in 2012 to $18bn in 2013, an increase of 18.2%. Profit before tax increased from $1.27bn in 2012 to $1.46bn in 2013, a jump of 15.8%. “We have begun to reap the benefits of our investment in information technology, agency banking, merchant business and paymentprocessing,” saysJamesMwangi, Equity Bank’s chief executive officer. REGIONAL EXPANSION The big banks are also making a killing from a surging demand for credit across the East African Community. A survey by the Central Bank of Kenya in October last year shows that the large banks are charging borrowers up to 2.45 percentage points more than their smaller rivals. They are also paying customers lower

PROFILE

Commercial Bank of Africa CBA’S M-SHWARI PULLS IN THE PUNTERS KENYA’S MID-TIER LENDER Commercial Bank of Africa (CBA, #113) has over the past few months overtaken big networked lenders to emerge as the country’s second-largest retail bank, riding on a new product that allows customers to borrow and save using their

mobile phones. The country has seen a fast uptake of M-Shwari, a product jointly sponsored by CBA and mobile network operator Safaricom – which owns another phenomenal financial product, M-Pesa. The latest data by the Central Bank of Kenya shows

M-Shwari has boosted the number of deposit accounts in Kenya to more than 21 million, leaving CBA second only to Equity Bank (#68) among Kenya’s biggest retail banks. The product, data shows, highlights the growing shift towards digital banking THE AFRIC A REPORT

●

in the Kenyan banking sector. The adoption of the technology has seen savings in the sector grow to at least $21.9bn. CBA is associated with the family of Kenya’s President Uhuru Kenyatta, which is said to have a substantial stake in the company. ● G. N. FINANCE SPECIAL

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S E P T E M B E R 2 0 14

TOP 200 BANKS

THE AFRIC A REPORT

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FINANCE SPECIAL

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EDWARD ECHEWALU FOR TAR

rates for deposits, widening the interest spread that is the biggest driver of profits. For the Kenyan top lenders, regional expansion is seen as a key thematic area in the coming years. They hope to reduce over-reliance on the Kenyan market, which is increasingly becoming saturated by new entrants. The five listed banks with significant cross-border operations – KCB, Equity, Investment & Mortgages Bank (#115), Diamond Trust Bank (#118) and NIC Bank (#127) – returned a combined profit before tax of $70m compared to a loss of $152m in 2012. “But even after successfully containing the cost base and making profits, there are still a couple of concerns regarding their regional operBANKING’S BRAVE NEW WORLD MEANS ations; and so the question is whether LESS TIME WAITING IN QUEUES – they will be able to sustain this profitabAND LOWER OVERHEADS FOR BANKS ility going forward. First is the issue of non-performing loans, which continues to record notable growth. This serves to nels, which offer lower banking charges show that there are still potential risks than ordinary services, alongside faster arising from non-performing assets,” says processing times of less than 10 minutes George Bodo, head of banking research for paying bills and checking balances. at Ecobank Group. “The retail market has come under In Uganda, with growth opportunities immense pressure from mobile money amongsmallnicheclientssteadilydiminservices and this has depleted margins ishing, top local lenders have shifted straearned by banks, but it still bears untegic focus towards deepening presence tapped potential,” says Patrick Mweheire, in retail and small and medium-sized executive director at Stanbic Bank enterprise (SME) segments, resulting in Uganda. The country has roughly four more investments in improved transacmillion bank accounts for a population tion platforms and increasing battles for of 35 million people. medium-sized businesses with big ambitions. While the top Tanzania has the highest number three lenders by assets – Stanof banks in the region (53) for bic Bank Uganda (#136), the lowest inclusion rate (17%) Standard Chartered Bank Uganda (#159) and Barclays In the corporate segment, Mweheire – relied significantly on a small collecsays, “the SME segment offers more tion of government and private sector clients to drive growth in the past, rising opportunities for lending and growing competition triggered by new players, fee incomes, but exploiting this sector particularly KCB and United Bank for requires restructuring their borrowing needs, which appear very imbalanced.” Africa (#19), has rocked their comfort zones, leading to feverish pursuit of new In Tanzania, while five banks control growth areas. more than half of the banking sector, more are joining in as the central bank, MOBILE BANKING POTENTIAL the Bank of Tanzania (BoT), continues For instance, Stanbic Uganda has inveslicensing lenders to operate. The country ted significantly in its mobile and internet now has 53 banks, compared to Kenya’s banking channels since 2012. It has done 43. Despite this, Tanzania’s level of finso in an effort to expand its retail client ancial inclusion is still less than 20% of the adult population. BoT figures show base, cut long queues in banking halls that in 2006 the proportion stood at and stimulate further growth in fee incomes following a sizeable dip in market 9%, rising to 12% in 2009 and in 2012 share – from 35% in 2012 to around 29% to 17%, or around 3.4 million people. in mid-2013, according to industry data. The rate jumps to 22% formal inclusion Standard Charteredis similarly consolwhen savings and credit co-operatives idating its electronic transaction chan(Saccos) are factored in. Tanzania has

a target to reach at least 50% formal financial inclusion by 2016. An economy that has only a handful of large banks with little competition fosters poor service delivery, which was the case when all Tanzanian banks were state-owned, says the BoT deputy governor, Lila Mkila. Individuals and small and micro enterprises are then at a particular disadvantage as big banks target the higher end of the market. A NEED FOR CONSOLIDATION A 2013 study by Serengeti Advisers says that between 2006 and 2009 CRDB Bank (#92), National Microfinance Bank (NMB, #101) and National Bank of Commerce (NBC, #156) together commanded 35-44% of banking business in the country, and the top 10 banks held 80% of total banking assets in 2012. “Tanzania could be better served with 20-25 large and medium-sized banks competing aggressively together, rather than 53 banks of which more than 20 are small and cannot compete with the largest 10 banks that dominate the market,” banking expert Manzi Rwegasira wrote in the report. Serengeti listed the Lebanese owned FBME Bank in first place with 20% of the market share. Management of FBME has since been taken over by the BoT, which in July 2014 was looking for buyers for its branches in Tanzania. In its latest Financial Stability Report, theBoTsinglesoutnon-performingloans among the biggest risks faced by banks in the country, but the operational threat has been receding. According to the regulator, non-performing loans stood at 6.5% of total loans in December 2013, down from 8.1% the previous year. ● Gilbert Nganga

TOP 200 BANKS

WEST AFRICA

TOTAL ASSETS ($bn)

PROFITS ($m)

Top 10 West African Banks

14 First Bank Of Nigeria 15 Ecobank Transnational Inc.

Nigeria Togo

23.8 22.5

434 148

17 Zenith International Bank*

Nigeria

16.6

643

19 United Bank For Africa Group

Nigeria

16.2

287

20 Zenith Bank Nigeria*

Nigeria

15.6

612

21 Guaranty Trust Bank

Nigeria

12.9

554

23 Access Bank Group

Nigeria

11.3

231

26 Diamond Bank

Nigeria

9.3

175

27 Ecobank Nigeria 33 Skye Bank

Nigeria Nigeria

9.2 6.9

33 98

RANK IN TOP 200

ECONOMIC ENGINES BACK ON COURSE Nigeria’s banks are well managed and capitalised, but financial governance issues remain. Meanwhile, Ivorian banks are benefiting from an infrastructure boom and a return to political stability

BANK NAME

COUNTRY

2013 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2012 RESULTS

here was much movement in the top ranks of West Africa’s banks last year, with Nigeria’s banking sector having marked a strong recovery from its 2009 troubles. Wema Bank (#99) illustrates the changes in the industry, moving from unranked last year to 99th place in this year’s chart. The Nigerian regional bank had 89% non-performing loans in 2009, which it reduced to 2.5% in the first half of 2014. Managing Director Segun Oloketuyi left Skype Bank in 2009 to take over at Wema, raising new capital and strengthening management practices. It reported a first-half net profit of N1.4bn ($8.6m) and is applying for a national banking license so that it can operate throughout Nigeria. GeorgeBodo,headofbankingresearch at Ecobank, explains that the Nigerian banking sector is now on firmer ground: “Performance is much better on three fronts. One is from a capital standpoint. They are much more well capitalised and strong ... From a credit-process perspective, the performance is excellent because we now have very clear and laid-down credit processes and that is properly integrated with corporate governance, something that was missing before the crisis. The last thing is profitability. We are seeing a return on equity of about 18%.”

INTERNATIONAL SUPPORT Bodo says that there are two things that remain to be done to strengthen the Nigerian banking sector: “The concentration risks are very high, in fact the top five banks control about 50% of the industry.” The central bank identified the eight systemicallyimportantbanksearlierthisyear and told them that they have to meet a higher capital standard than the rests of

the banks. “The second thing is that the banks themselves really need to de-emphasise their current lending model,” Bodo explains. He says that almost 80% of loans are destined for the wholesale market – medium and large corporates. The government plans to sell the three banks it nationalised and renamed – Mainstreet Bank (Afribank), Keystone Bank (Bank PHB) and Enterprise Bank (Spring Bank) – this year. Keystone Bank announced that it is selling off its insurance business and loss-making operations in Liberia, Sierra Leone and Uganda before it will be sold. FirstBank of Nigeria (#14) overtook Ecobank Transnational (#15) as West Africa’s largest bank by assets in this year’s ranking. That run of good perform-

ance met trouble in the first quarter of 2014 when FirstBank reported a year-onyear 21.1% drop in first-quarter profits before tax to N28.1bn. New reserve requirements on public sector deposits limit the bank's lending ability. On the other hand, total assets rose by 11.6% over the same period. The international markets have strongly supported Nigeria’s banks. FirstBank launched a $450m eurobond in July, Diamond Bank (#26) issued its first eurobond in May and Zenith Bank (#20) raised $500m in April. Governor Godwin Emefiele took over from sacked governor Lamido Sanusi in June and has since said that the central bank plans to lower interest rates from the current level of 12% ● ● ●

WEST AFRICA'S BIGGEST BANKS AND THEIR DEPOSITS FIRST BANK OF NIGERIA (Nigeria)

18 013 848

ECOBANK TRANSNATIONAL INC. (Togo)

16 489 904

ZENITH INTERNATIONAL BANK (Nigeria)

12 327 869

UNITED BANK FOR AFRICA GROUP (Nigeria)

13 291 269

ZENITH BANK NIGERIA (Nigeria)

11 514 831

GUARANTY TRUST BANK (Nigeria) ACCESS BANK GROUP (Nigeria) DIAMOND BANK (Nigeria) ECOBANK NIGERIA (Nigeria) SKYE BANK (Nigeria)

8 872 617 8 188 225

Total

7 417 171 7 001 000

108 180 183 US $

5 063 449 THE AFRIC A REPORT

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SOURCE: JEUNE AFRIQUE TOP 200 BANKS

TOP 200 BANKS

over the next five years. After quarter of 2014, when its year-on-year net profit rose to 71.8m ($21m), thanks in Sanusi’s high-profile tenure, Emefiele part to a 45.4% rise in net interest income. has sought to strike a more reserved position. Nonetheless, in his first policy The bank’s share price rose even more statements, he said the bank cannot rapidly, recording 111% growth between March 2013 and February 2014. On the solely focus on monetary policy and negative side, non-performing loans for needed to address unemployment and 2013 rose to 5.6% from about 1% due to other factors. The CBN’s interventions the takeover in 2012 of The Trust Bank. have integrated the banking sector further into the economy – via financing the Ghana’s worst performer is the Agpower, energy and agriculture sectors. riculture Development Bank (#180), which launched a rebranding operation The post-2009 consolidation process led to a reduction of international expansion programmes, After Sanusi's high-profile tenure, as many Nigerian banks had Emefiele has sought to rapidly launched operations strike a more reserved position throughout West Africa. There are signs that appetites for inin January. The state-owned bank estimternational growth have returned. In ates that it provides 35% of Ghana's agriApril, GTBank (#14) announced plans cultural funding and plans to list on the to open a subsidiary in either Angola, Ghana Stock Exchange in 2015 to source Mozambique or Tanzania, in addition moreprivatecapital.PwC’s2013surveyof to opening an additional 25 branches Ghanaian banking revealed the agriculin Nigeria in 2014. tural bank was the sixteenth most illiquid of the 24 surveyed. The size of the stake MIXED FORTUNES In Ghana, government-imposed restricfor sale has not yet been announced. tions on foreign exchange transactions Ecobank’s Bodo says that Ghana’s since early 2014 are unlikely to hurt banks have been slowed by their weak banks’ bottom lines but are likely to sour take-up of technology and the high cost relations with customers as banks cancel of some products. Mortgages can have accounts. The best Ghanaian performer interest rates as high as 25% in cedi terms in this year’s ranking is Ecobank Ghana and banks have not robustly stress-tested (#106), which rose 22 places. Its strong borrowers, which could prove problematic as Ghana’s economic performance performance continued into the first

●●●

continues to weaken. Meanwhile, Côte d’Ivoire’s booming economy after the 2010 post-electoral crisis has benefited the country’s financial sector, with Atlantique Business International (ABI, #65), its Ivorian subsidiary Banque Atlantique (#135) and Société Ivoirienne deBanque(#156) amongst the strongest West African risers in The Africa Report’s rankings. ABI is owned by Morocco’s Banque Centrale Populaire (#8), and its Ivorian operation is involved in financing priority infrastructure projects. In July, Banque Atlantique Côte d’Ivoire provided a €100m loan to the government to construct a second container terminal at the Abidjan port. It also part financed upgrades to a road linking Yamoussoukro to the north. ABI’s Senegal-based subsidiary has secured a series of lucrative deals with the government there. It loaned the Dakar government 150bn CFA francs ($300m) in December 2013 and won the rights to help it raise an additional $200m from international markets. Togo’s Oragroup (#104) is also growing fast. In September 2013, Oragroup took over the Banque Régionale de Solidarité, which operates in the countries of the Union Economique et Monétaire Ouest-Africaine. A month later, the Fonds Gabonais d’Investissements Stratégiques investment fund bought a 2.66% stake Marshall Van Valen in the group. ●

PROFILE

Ecobank PAN-AFRICAN GIANT EXTENDS ITS REACH TOGO-HEADQUARTERED Ecobank Transnational (#15), has attempted to draw a line under what has been a turbulent year. In early 2014, deputy group chief executive Albert Essien led a group of senior executives in calling for the resignation of chief executive Thierry Tanoh following a series of scandals and a high-profile probe by the Nigerian Securities and Exchange Commission into bank result manipulation. Tanoh stepped down and Essien took over in March.

Essien, who began his career at Ghana’s National Investment Bank in 1986, joined Ecobank’s Ghanaian division in 1990. He enjoyed a rapid rise, eventually becoming managing director in 2002 before moving to the group's headquarters. Despite the internal power struggles, the bank has continued its expansion. It launched new operations in Mozambique in June after buying out Banco ProCredit. Ecobank also announced plans to open a bank in Angola before the end of this year.

In July, the bank reported a 27% increase in first-half, pre-tax profits to $255m and a 7% rise in net lending in the second quarter. Ecobank Ghana was a star performer, with a 91.2% rise in 2014 first-half profits to $45.5m. Ecobank has focused on reducing costs and its cost-to-income ratio dropped to 68.1% in the first half of 2014 from 70.97% in 2013. Meanwhile, South Africa's Nedbank (#5) looks set to take a 20% share in Ecobank as part of a deal to convert THE AFRIC A REPORT

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ERIC LARRAYADIEU FOR JA

100

ALBERT ESSIEN TOOK OVER AS ECOBANK CEO IN MARCH

a $285m loan into equity. If approved, the agreement, which is part of a strategic alliance between Nedbank and Ecobank, would give the Lomé-based lender a capital adequacy ratio of 18.7% by the close of 2014. ● Honoré Banda

FINANCE SPECIAL

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TOP 200 BANKS

BIG BANKS EXPAND BEYOND THEIR BORDERS Gabon’s BGFI and Cameroon’s Afriland have launched operations in West and Central Africa, but they have yet to prove they can succeed in tougher regulatory environments and amidst stronger competition

BANK NAME

COUNTRY

PROFITS ($m)

Top 10 Central African Banks TOTAL ASSETS ($bn)

CENTRAL AFRICA

RANK IN TOP 200

40 BGFIBank Holding Corp. 58 Afriland First Group

Gabon Cameroon

6.1 3.7

65 23

74 BGFIBank Gabon

Gabon

2.8

93 CCEI Bank GE

Eq. Guinea

2.2

114 BGFIBank Congo

Congo

1.7

130 Société Générale Cameroun

Cameroon

1.4

17 21

133 BICEC

Cameroon

1.3

143 Afriland First Bank*

Cameroon

1.2

168 Soc. Comm. de Banque Cam. Cameroon 170 BICIG Gabon

0.9 0.9

17 8

2013 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2012 RESULTS

the development of improved riskmanagement systems. BGFI has not ignored its home market, and it opened five new branches in 2013. As a result, it controls 47% of the markets for loans and deposits. BGFIBank Gabon (#74) increased its loans and deposits by 29% and 15%, respectively, in 2013. Besides geographical diversification, BGFI also bought Gabon-based insurer Assinco in 2012.

NICOLAS EYIDI FOR J.A.

102

nlyoneCentralAfricanbank has broken into The Africa Report’s top 50 banks, Gabon-based BGFIBank Holding Corporation (#40), which aims to be a continental player. It is unlikely to meet its target of operating in 15 countries by 2015 – it is based in nine at the moment – but the bank it opened in Côte d’Ivoire in 2012 is already making a profit and it has a partnership with insurer OGAR to expand insurance product coverage in the countries where the bank is active. Expansion has temporarily weakened the bank and last year BGFIBank group’s balance sheet dropped by 0.1%. The bank’s performance was strengthened by activities in Côte d’Ivoire and Cameroon and weakened

IN YAOUNDE, CAMEROON, AFRILAND FIRST BANK HQ PROVES A FUNKY FACADE CAN BE AN ASSET TOO

by its activities in Equatorial Guinea and the DRC. In June 2013, the bank sacked its leadership team in Benin and had to recapitalise its operations after it discovered problems in risk management. In June of this year, BGFIBank president Henri-Claude Oyima said that the next phase of the bank’s expansion would target anglophone countries and acquisitions. Senegal, however, could be the next country to host a BGFIBank subsidiary. Oyima announced the implementation of the ‘Excellence 2020’ plan this year, which also includes the rolling out of new products and

AFRILAND GOES WEST BGFI’s rival for dominance in Central Africa is Cameroon’s Afriland First Group (#58), which is also planning on regional expansion in order to grow its balance sheet. Both banks began their regional expansions in the early 2000s, but Afriland’s business focus tends to be on small and medium-sized enterprises. Afriland completed its acquisition of loss-making Access Bank Côte d’Ivoire in December 2013. Access Bank has sought to sell its non-essential holdings outside of its home in Nigeria and a few other markets. Paul Fokam, Afriland’s founder, told reporters in Abidjan that the bank would focus its activities on Ivorian agriculture. Not all of its attempts to set up new operations have been successful. In March 2013, Afriland lost out on the bidding for a 55% stake in the Banque Togolaise pour le Commerce et l’Industrie after the government rejected its bid. At home, Afriland spent several months defending itself in a case related to the management of government funds. The bank reimbursed the missing funds and the supreme court dismissed the case in May. Afriland has also not been as quick as its counterparts in publishing annual ● ● ●

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 14

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104

TOP 200 BANKS

●●● results and had not issued its vices and received a big boost in May with a $15m loan from the World Bank’s 2013 financial reports by the time The private sector arm, the International Africa Report went to press. Finance Corporation. Rawbank plans to Afriland’s most profitable operause the money to finance loans, espetion is in Equatorial Guinea, where it cially for women and small businesses is the majority shareholder of CCEI (see TAR 62, July 2014). Bank GE (#93). CCEI Bank climbed the most places last year, 14, of any bank in the region. In There are more mobile banking announcing plans for the accounts than traditional ones opening of a bank in Benin, in Cameroon, Gabon and the DRC CCEI Bank GE director general Joseph Célestin Tinjou said in Ecobank’s Bodo warns, however, February that the financial institution that the sector is poorly regulated in controls 70% of business in its home the DRC. “I was in the DRC last year. market. Tinjou says the bank will focus on attracting the business of small The regulatory environment is really companies in Benin. not up to the call. Banks do not report on IFRS. There are no clear guidelines George Bodo, the head of bank reon the treatment of non-performing search at Ecobank, is sceptical about the international expansion of Central Africa’s banks. “I do not think it PROFILE will be successful. First, their cost of funds are generally high.” He also points to issues of capital controls in some Central African markets and of customer dynamics, especially in the English-speaking countries.

loans. There are still a lot of significant loopholes that we do not see in other markets,” Bodo says. Another rapid riser on our Top 200 banks list was the Brazzaville-based La Conglaise de Banque (#187), which also rose 10 places this year. The bank, in which Morocco’s Banque Marocaine du Commerce Extérieur (#10) holds a 25% shareholding, trails BGFIBank Congo (#114) in size and has concentrated on strengthening its bancassurance model – one that combines traditional bank offerings and insurance products – in order to increase its market share. In its 2013 results, BMCEBank reported that La Congolaise de Banque’s deposits and loans rose year on year by 8% and 5%, respectively. ● Marshall Van Valen

Société Générale Cameroun

GRAB YOUR HANDSETS Bodo explains further that “you do not see strength in the regulatory policy environment. It is not as strong as other markets. For instance, in Central Africa most of the banking aspects are still based on Basel I. Some markets are moving to Basel III. In Central Africa, there is no IFRS [International Financial Reporting Standards] adoption.” In Central Africa, telecoms companies and their mobile banking platforms have been gaining on the traditional banks. While mobile banking has been slower to take off in markets like Chad and the Republic of Congo, the Alliance for Financial Inclusion reports that that there are more mobile banking accounts than traditional accounts in Cameroon, Gabon and the DRC. While telecoms companies have been the most active in supporting mobile banking, the Banque Internationale pour le Commerce et l’Industrie du Gabon (#170) introduced BICIG Mobile in 2012. It already has 70,000 clients, two thirds of them without traditional bank accounts, and the bank has a medium-term goal of reaching 200,000 BICIG Mobile accounts. Rawbank (#175) has a market share of about 20% of the DRC’s banking ser-

CREDIT LEADER IS FIRING ON ALL CYLINDERS THE BANK, #130 IN OUR RANKINGS, claims a 23% share of the Cameroonian credit market, making it the leader in the field. In October 2013, the subsidiary of French bank Société Générale opened its 29th branch in the country, changed its name from SGBC to Société Générale Cameroun (SGC) and celebrated 50 years of operations. It opened offices in Edéa, Foumban and Kribi in 2013 and plans to expand to more than 40 branches by 2016. SGC reported a net profit of 12.4m CFA francs ($25.5m) for 2013. In late July, the Cameroonian government chose SGC as one of the seven banks to participate in an

emergency action plan that covers several sectors, including health, roads and electricity provision. The banks will evaluate local companies to participate in the projects as well as identify critical projects to develop. In 2012, SGC joined a group of local and international banks in financing the construction of a gas-fired power plant for the port city of Kribi. In order to reach the unbanked population, in August 2013 it launched a programme of mobile branches to serve clients who live outside of the cities with SGC branches. The mobile branches are kitted-out vehicles with the information technology tools that allow clients THE AFRIC A REPORT

●

to perform the transactions that would normally be done in bricks-and-mortar offices. In 2012, the bank also launched Monifone, a multioperator mobile-payment service to rival the likes of Orange Money and MTN’s Mobile Money, which were introduced by telecoms firms. Seeking to learn from its competitors, the bank announced in July that it had hired United Bank of Africa’s Georges Wega as its assistant director general. Wega was head of the Nigerian bank’s operations in Cameroon. Before taking up his new post, Wega warned that bad loans make up about a quarter of the country’s loan book. He brings experience from General Electric and Barclays. ● M. V. V.

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TOP 200 BANKS

SOUTHERN AFRICA WEATHERING THE STORM The financial health of the South African consumer is under increased scrutiny as banks worry about debt defaults, slowing growth and revenue prospects

PROFITS ($m)

RANK IN TOP 200

Top 10 Southern African Banks

COUNTRY

TOTAL ASSETS ($bn)

106

1 Standard Bank Group 2 Standard Bank of South Africa

S. Africa S. Africa

161.3 1 637 96.7 1 001

3 Barclays Africa Group

S. Africa

91.4 1 226

4 FirstRand Group

S. Africa

82.8 1 493

5 Nedbank Group

S. Africa

71.4

853

12 First National Bank S. Africa*

S. Africa

718

24 Banco Angolano de Invest.

Angola

10.6

123

28 Banco de Fomento Angola

Angola

8.9

244

6.9 6.3

168 120

BANK NAME

Angola 32 Banco Bic* 36 The Mauritius Commercial Bank Mauritius

2013 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2012 RESULTS

t has been a torrid year for South Africa’s African Bank (#41), which has built its fortunes on issuing unsecured loans to mainly low-income consumers. In May, it wrote off R8bn ($750m) in bad loans, triggering a credit rating downgrade to junk by Moody’s and speculation that a second rights issue, at a steep discount, will be needed to rescue the bank. The group raised R5.2bn in equity funding in December following a R9.1bn bad debt write-off for the year ended September 2013. A small bank in the South African sector with a relatively unique business model, African Bank’s troubles are not a reflection of the industry as a whole in Southern Africa. Angola and Mozambique, both buoyed by inflows of capital linked to the oil and gas sector, remain solid – though Luanda has been shaken

by news of a near $6bn guarantee the state has had to set aside for Banco Espírito Santo Angola to underwrite nonperforming loans. It has, however, highlighted the risk posed to banks by the financial health of South Africa’s households and raised questions about the quality of its competitors’ loan books. The World Bank cut its forecast for the country’s growth to 2%, from an earlier forecast of 2.7%, after a record fivemonth-long strike by platinum miners saw the economy contract by 0.6% in the second quarter, the first period of negative growth since 2009’s recession. Two weeks after 80,000 platinum miners returned to work in June, more than 200,000 workers in the metals and engineering sector downed tools in a dispute over pay. The South African Reserve Bank (SARB) warned that protracted labour

STANDARD BANK GROUP (South Africa)

85 620 500

STANDARD BANK OF SOUTH AFRICA (South Africa)

67 108 289

BARCLAYS AFRICA GROUP (ex-ABSA) (South Africa)

57 628 082

FIRSTRAND BANKING GROUP (South Africa)

57 022 420

4 436 287

BANCO BIC (Angola)

2 578 540

BANCO ANGOLANO DE INVESTIMENTOS (Angola)

2 511 134

BANCO DE FOMENTO ANGOLA (Angola)

1 567 281

FIRST NATIONAL BANK SOUTH AFRICA (South Africa) N/A

SOUTHERN AFRICA’S BIGGEST BANKS AND THEIR LENDING Total 333 628 747 US $

SOURCE: JEUNE AFRIQUE TOP 200 BANKS

55 156 214

NEDBANK GROUP (South Africa) THE MAURITIUS COMMERCIAL BANK (Mauritius)

strikes could pose a risk for the banking sector, as it could reduce the ability of companies and workers to service their debts. Protracted strikes could also lead to job losses. The banking sector’s fortunes in both the country and the region are closelytied to that of the South African economy. In June, Fitch downgraded the outlook on the credit ratings of the country’s four biggest banks to negative from stable, following a similar downgrade of the country’s sovereign rating. HOUSEHOLDS UNDER PRESSURE “The revision of the outlook to negative reflects the four banks’ concentration to South Africa, a high proportion of liquid assets invested in government securities and a weakening operating environment,” Fitch said. In addition to slowing growth, unemployment and inflation have risen, promptingtheSARBtoraisethecountry’s benchmark interest rate from historic lows in January for the first time in more than five years. This has placed indebted households under even more pressure. While the level of household debt as a proportion of after-tax income has declined to 75% from 2008’s peak of 83%, it remains at historically high levels and of concern to analysts, given households’ relatively low income levels. “So far, the economic slowdown has really only affected the unsecured segment of the market. We are worried that other areas in the retail banking side may also be vulnerable,” said Jaap Meijer, executive director at Arqaam Capital. Most banks, including Barclays Africa Group (BAG, #3), which saw big writedowns in its home loan book in recent years, have tightened their lend- ● ● ●

THE AFRIC A REPORT

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TOP 200 BANKS

ing criteria to reduce the risk of bigger-than-expected impairments. Graeme Korner, director at Korner Perspective, said that while consumers’ disposable income is under pressure a big spike in impairments is not expected. “The big four banks [Standard Bank (#1), First National Bank (#12), ABSA (now Barclays Africa Group, BAG, #3) and Nedbank (#5) have gotten much better at managing their debt books.”

●●●

MINDING COSTS While the country’s banks, with the possible exception of African Bank, remain adequately capitalised, the state of the economy means that revenue growth could be limited, analysts said. The focus is likely to be on cost, and leveraging the massive investments made into information technology systems in recent years to streamline processes and improve efficiencies. Increased competition in the sector and attention from the country’s antitrust authorities mean there is little scope to increase bank fees, one way to grow non-interest revenue. “It is a very tough environment to grow the top line. The local banking scene is very competitive,” said Korner. For revenue growth, “the banks really have to operate outside of South Africa’s borders”.

Standard Bank, which trades on the continentasStanbicBank,hasthebiggest footprint, with operations in 17 African countries outside South Africa. BAG, with operations in 10 countries north of the Limpopo, is also well-placed to benefit from the higher growth prospects and low banking penetration rates outside South Africa (see box). FirstRand (#4) and Nedbank face a tougher battle. While FirstRand has set aside R10bn for acquisitions on the continent, it has walked away from three potential deals in the past three years, saying it won’t overpay for assets. It aims to expand into Nigeria this year and says it will start building a banking operation from scratch in Ghana after talks to acquire Merchant Bank Ghana failed last year. “Building a greenfields bank in Ghana will be a long hard slog,” Korner said. FirstRand will continue to build its investment banking footprint on the continent, doing much of the work in South Africa. Nedbank, which bought a stake in Banco Unico in Mozambique earlier this

year, is expected to decide by December if it will convert a $285m loan it made to Ecobank in 2011 into an equity stake of around 11%. It has the option to increase the stake to 20%. Ecobank has operations in 33 countries on the continent, including in key markets like Nigeria and Kenya. Analysts remain concerned over Ecobank’s corporate governance regime after Nigeria’s Securities and Exchange Commission (SEC) made recommendations to improve procedures in January. The SEC report, which followed a complaint by a former Ecobank finance director that the group planned to sell assets at below market value, led the Public Investment Corporation, Ecobank’s biggest shareholder, to call for the resignation of then-CEO Thierry Tanoh. He was ousted by the board in March. “We think Nedbank would go for the equity stake and probably would like to get control of the group eventually,” said Arqaam Capital’s Meijer. ● Jana Marais in Johannesburg

PROFILE NADINE HUTTON/BLOOMBERG VIA GETTY IMAGES

108

Barclays Africa Group MAKING AFRICAN BUSINESS A PRIORITY A YEAR AFTER Barclays sold the bulk of its African operations to ABSA, its South African subsidiary, the combined Barclays Africa Group (BAG, #3) has been outperforming its rivals on the Johannesburg Securities Exchange (JSE). Following two years of underperformance, driven in part by higher-than-expected credit write-downs in its home loan book and a loss in market share from its retail and

business banking divisions, operational improvements and its expanded African footprint have boosted investor confidence. “BAG has scored a few own goals in the past few years, but they’ve got some good talent and it seems that, operationally, they’re getting on top of things. Management looks a lot more confident,” said Graeme Korner of Korner Perspective. The Africa acquisition is already contributing

to earnings, and the group is targeting up to 25% of its revenue to come from operations outside South Africa by 2016. In 2013, it contributed an estimated 4% to banking revenue, with disclosure expected to be more detailed this year. For Barclays, growing its African business is a priority. When the bank announced plans to cut 19,000 jobs over the next three years in May, it said its African operations THE AFRIC A REPORT

●

won’t be affected. BAG will continue to hire staff across its operations in 11 countries on the continent, including Ghana, Kenya, Zambia, Mauritius and Tanzania, as it sees an increase in capitalraising efforts and mergers and acquisitions, it said. In July, BAG’s investment bank was ranked second on the continent after Morgan Stanley for equity issuance for the year, according to data from Bloomberg. ● J. M.

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TOP 200 BANKS

IN TRANSITION, BANKS SLOWLY REGAIN TRUST Increased stability in Egypt and Tunisia bring banking reform and an effort to support small industries, while Islamic banking is attracting a new class of investors across the region

PROFITS ($m)

Top 10 North African Banks

COUNTRY

TOTAL ASSETS ($bn)

NORTH AFRICA

RANK IN TOP 200

Egypt Morocco

61.2 46.6

239 613

8 Groupe Banque Centrale Populaire Morocco

35.1

388

9 Banque Misr

31.2

166

10 Banque Maroc. du Comm. Extérieur Morocco

28.6

149

11 Banque Nationale d’Algérie

Algeria

27.8

386

13 Banque Extérieure d’Algérie

Algeria

26.6

264

16 Crédit Populaire d’Algérie

Algeria

17.4

213

18 Commercial International Bank 22 Qatar National Bank Al Ahli

Egypt Egypt

16.3 11.6

374 58

BANK NAME

6 National Bank of Egypt 7 Attijariwafa Bank

Egypt

2013 RESULTS FROM TOP 200 BANKS RANKING

hile North African countries have been focusing on politics after the 2011 uprisings, the economic side – particularly the banking sector – has been neglected. Over the past few years in Egypt, for example, banks have been using as much as 40% of their balance sheets to fund government budgets through the purchase of government-issued paper. Public banks are no exception and are heavily exposed to treasuries, with the National Bank of Egypt (#6) and Banque Misr (#9) the most vulnerable. This trend, coupled with a widening of the budget deficit and more stringent prudential regulation, could lead to a situation where banks hit their single obligor limit. This is particularly true for foreign-owned banks that have to comply with Basel III requirements. It’s just one example of how the countries in the region “need many financial-sector adjustments to be sustainable”, according to Laurent Gonnet, the World Bank’s senior financial-sector specialist for North Africa. EGYPTIAN PROGRESS Showing some promise, Egypt’s newly adopted budget, approved by recently-elected president Abdel Fattah al-Sisi, targets a lower budget deficit. This could reduce pressure on banks to fund the public deficit and unlock more resources to fund the private sector. At face value, stability seems to have improved as the non-performing loan ratio has dropped from 13% (pre-revolution) to about 10%. Yet, this improvement is due in part to revision of the payment calendar allowing an extension of the payment period for some loans.

SHAWN BALDWIN/BLOOMBERG VIA GETTY IMAGES

110

Analysts are optimistic: despite some weaknesses, the banking sector in Egypt remains sound. Aware of existing challenges, the Central Bank of Egypt has been making steady progress on reforms in the face of political unrest, while deposits growth in March 2014 was 17% higher than pre-revolution levels of 9% – a strong signal of trust in the Egyptian banking system. “Credit growth [across the region] was a bit sluggish and innovation was hampered. However, in the case of Egypt, the sector reaped gains of earlier reforms and consolidation and was able to surf the recent turmoil with minimal pains,”says Sahar Nasr, World Bank lead financial economist for the Middle East and North Africa region. “Political stability is key to sustain a healthy growth and in this respect Egypt is emerging as

TOP-RATED NATIONAL BANK OF EGYPT WILL BENEFIT FROM A LOWER BUDGET DEFICIT, UNLOCKING RESOURCES

the most robust and stable recovering market in the region,” Nasr says. Algeria appears to be following the regional trend even if its exposure to the Arab Spring was limited. “Algeria is a closed market where the government is the main economic actor: 90% of the banks are state-owned and all the non-performing loans are regularly absorbed, costing the country 1% of its GDP,” says the World Bank’s Gonnet. Early this year the country worked on different financial crisis simulation exercises, while the central bank is trying to improve the country’s legal framework. In Tunisia, efforts to reform publicsector banks have accelerated ● ● ●

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TOP 200 BANKS

nomy, through its intervention in the In 2012 Libya passed a law to intromicrofinance sector – via the Banque duce Islamic finance into the country, which would ban the use of interest payTunisienne de Solidarité – as well as financing the small and medium-sized ments in the move to a sharia-compliant enterprises sector through the Banque financial system. The shift is expecde Financement des Petites et Moyennes ted to be completed in 2015, but the Entreprises. details of its implementation are not Meanwhile, Islamic banking is rapclear yet. That is worrying to some, as idly growing worldwide, particularly in the transition “could further reduce North Africa. Islamic financial assets financial intermediation unless instirepresent around 10% of the banking tutions, instruments and capacity are introduced,” says Pietro Calice, a World sector. Egypt hosts the oldest Islamic Bank in the region, while Morocco has Bank senior financial sector specialist recently developed a more conducive covering Libya. regulatory environment for Islamic finance that is expecMorocco has taken advantage ted to attract investments in of its expertise in the region, with the short and medium term. banks opening branches in Tunisia It is likely to attract Dh70bn ($8bn) in five years, to repThe Libyan financial sector remains resent 10% of the country’s assets. underdeveloped and mainly owned “Islamic banking will be a hit if Islamic banks succeed in providing the by the public sector (around 80% of same services as conventional banktotal assets), and the banking sector is the main provider of financial services. ing for a lower price, which won’t be “The lack of access to finance makes it an easy thing for new organisations,” particularly difficult for private-sector says Rachid Kettani, finance director enterprises to start or expand their opfor Attjariwafa Bank. erations. Collateral regimes are difficult Tunisia and Libya are also experito enforce; credit information systems encing more interest in introducing are nascent; the (development) banks this class of services. “Islamic finance provides workable solutions to finance considerably distort the sector as they MICROFINANCE AND SMEs But the reform of the banking sector in innovations and entrepreneurs that are primarily directed to implement Tunisia is expected to go beyond the build on risk sharing and minimal colsocial programmes,” explains Calice. restructuring of public banks. The govlateral requirements. This provides Morocco has had different chalernment recently presented an outline opportunities for growth and devellenges to its neighbours. While less for how the state should fund the ecoaffected by political turmoil, the counopment,” says Nasr. try was badly hit by the European economic crisis. As the crisis seems to PROFILE fade, Morocco’s deposits have been increasing in 2014. Last year’s liquidity stress had the Central Bank injecting Dh75bn into the economy to unburden the banks, a level that decreased this year to Dh30bn. Morocco-based Attijariwafa Bank’s expansion in Tunisia is a good example of how the country is taking advantage MOROCCO’S BANQUE of its expertise in the region. “Tunisian development strategy. government. This 6.5%, CENTRALE POPULAIRE banks were not offering products to the BCP’s balance sheet 7-year private loan, (#8) (BCP) is happy Tunisian diaspora such as transfer fund shows 7% growth, money which will with its results: solutions, easy ways to take a credit reaching more than be used for the ‘Plan net profit for 2013 was Dh290bn – a reflection Sénégal Emergent’, from abroad or currency convertible accounts, which are products that are, Dh2bn ($240m), up 4%. of the overall growth is a first for the region. in Morocco, already well developed,” Following the same of the group. With this loan, which trend, its net banking Through its brings Crédit Suisse says Kettani. Morocco remains the income increased 15% subsidiaries Upline into the West African second-largest foreign intra-African investor: Moroccan direct investment to Dh13bn and the group Group, Banque Economic and Monetary in Africa is expected to accelerate from consolidated its internal Atlantique and Union for the first time, a pace of $2bn in the past 10 years to capital to Dh34.5bn, Atlantique Finance, BCP BCP positions itself as a 11% growth, allowing raised a $500m loan platform between Europe around the same amount in the comthe bank to pursue its for the Senegalese and the continent. ● N. R. ing two to three years. ● Nadia Rabaa ● ● ● over the past year. Audits of Banque de l’Habitat (#57) and Société Tunisienne de Banque (#45), two out of the three state-owned banks, are now finalised while the third, Banque Nationale Agricole (#46), has recently begun its review. “These audits will inform the action plan that will be implemented to address the weaknesses […] both in terms of financing but also governance and management practices and systems,” says Thouraya Triki, a principal economist for the African Development Bank. The outline of the action plan was presented to the Council of Ministers in July and its implementation should start this month. This could result in the private sector managing a state-owned bank, which would be a first for the region. Meanwhile, the government has been busy creating an asset management company over the past three years, which would deal with non-performing loans outside of a court of law. Gonnet explains: “The idea is to get rid of the entire tourism sector’s non-performing loans first, as the sector is heavily indebted, with many business owners abusing the bankruptcy law.”

Banque Centrale Populaire MOROCCAN BANK BROKERS CROSSCONTINENT LOAN FOR SENEGAL

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114

The way of the dragon?

fter more than 50 years of independence, African countries remain embroiled in the controversy over which political model – democracy or authoritarianism – to adopt in order to enhance economic and human development. In recent years, the extraordinary economic growth success of the People’s Republic of China has reignited the debate about the role played by benevolent dictators in the economic and social transformations of poor and highly underdeveloped countries such as many of those in Africa. In 1978, China introduced policy to strengthen and transform the country’s agricultural, industrial, defence, and science and technology sectors, and to make its economy more reliant on markets. The Chinese Communist Party, however, was careful to leave out of the process any efforts to effectively transform the political, administrative and judicial foundations of the state. All of the country’s remarkable economic performance has taken place within a political economy characterised by state-directed ‘capitalism’ and continued deterioration of fundamental rights. When weighing development versus democracy, it is important to distinguish between economic growth and economic or human development. Development is the process of improving quality of life, while economic growth is an increase in the economy’s capacity to produce more goods and services. It is possible for a country to achieve significant levels of economic growth and yet remain essentially underdeveloped, as many of its citizens continue to suffer from poverty and material deprivation. In fact, if growth is generated primarily through the export of raw materials such as oil and other environmental resources, as has occurred in several African countries during the last several decades – Equatorial Guinea, South Sudan and Nigeria, for example – the poor may not have the opportunity to participate fully in, and hence benefit from, such growth. What African countries need is not just economic growth but development – not just the ability to earn more but also the choice in activities to secure that income, as well as what to do with it. Perhaps, more importantly, they need the state to guarantee the security of both their person and their property. While countries such as Equatorial

Guinea have seen phenomenal growth rates, the majority of citizens in these countries have yet to encounter real development. While many East Asian countries such as Singapore and South Korea are considered newly industrialised, the African countries, which at independence were endowed with significant amounts of natural resources, continue to suffer from extremely high rates of poverty. An element that is often overlooked is the role that institutions have played. Unlike Africa’s authoritarian governments, Asian political systems have been quite friendly to entrepreneurship and the creation of wealth. China’s rapid economic growth has come primarily from institutional changes that have significantly enhanced the functioning of markets. Similarly, the recent successes achieved by Ethiopia and Rwanda are not due to their non-democratic governments per se, but to institutional reforms. The main problem, however, is sustainability – reforms carried out under dictatorial regimes through a top-down, elite-driven, non-participatory process are not likely to survive a change of regime. Democracy, with its emphasis on openness, transparency and improved access to the government, has actually increased levels of corruption in some African countries. In many of these newly democratised countries governing processes have relatively weak checks and balances. As a consequence, civil servants and political elites are still able to behave with impunity and engage in behaviour that impedes economic growth and development. As African heads of state met in Washington DC in August, the emphasis should have been on strengthening democracy and providing their economies with institutional arrangements that guarantee the rule of law. It is only within such an institutional environment that these countries can achieve the peaceful coexistence necessary to maximise wealth creation and promote sustainable economic and human development. ●

Unlike Africa’s authoritarian governments, Asian political systems have been quite friendly to entrepreneurship and the creation of wealth

Mwangi Kimenyi and John Mbaku are director and non-resident senior fellow respectively at the Brookings Institution’s Africa Growth Initiative. THE AFRIC A REPORT

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