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2nd Quarter 2017 Issue 40 An IC Publication

S Af r i c a : R i p p l e s f r o m t h e Night of the Long Knives Is Islamic banking moving i n to I M F m a i n s t r e a m? The rise and rise of C o n t i n e n t a l Re

WEST AFRICA: BANKS DEFY ECONOMIC EDDIES Segun Agbaje of GT Bank – symbolising streng th of Nigerian banks

EUROZONE €8.00, UK £5.50, USA $9.95, CFA Zone CFA5.000, Egypt E£40, Ethiopia R100, Gambia Da100, Ghana GH¢12.00, Japan ¥1400, Kenya KShs580, Kuwait KD2.500, Mauritius MR300, Morocco Dh60, Sierra Leone LE 20000 Singapore S$14, South Africa R50.00 (inc tax), Other Southern African countries R43.90 (excl tax), Switzerland SFr15.00, Tanzania TShs10,000, Tunisia TD5.000, UAE Dh30, Uganda USh15,000, Zambia ZMK 30

SEND SHOP AFRICAN. RECEIVE We can keep African manufacturing on target. We believe the more products made in Africa, the better it is for Africa. It’s why we’ve built the continent’s largest fibre infrastructure and provide an award-winning satellite network, ensuring manufacturing is as streamlined and efficient as it can possibly be. Because we are not just a telecoms company. We are your technology partner.

Download it now

WITH THE ALL NEW Ecobank Mobile App Our all new app is_on Ecobank_on

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Building Africa’s digital future

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AFRICAN. We can keep African manufacturing on target. We believe the more products made in Africa, the better it is for Africa. It’s why we’ve built the continent’s largest fibre infrastructure and provide an award-winning satellite network, ensuring manufacturing is as streamlined and efficient as it can possibly be. Because we are not just a telecoms company. We are your technology partner.

Building Africa’s digital future

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United Kingdom IC Publications 7 Coldbath Square London EC1R 4LQ Tel: +44 20 7841 3210 Fax: +44 20 7713 7898 E-mail: France IC Publications 609 Bat A, 77 Rue Bayen 75017 Paris tel: +33 1 44 30 81 00 fax: +33 1 44 30 81 11 email: FOUNDER AND EDITOR-IN-CHIEF Afif Ben Yedder Directeur de la publication ( GROUP PUBLISHER Omar Ben Yedder ( EDITOR Anver Versi SUB EDITOR Charles Dietz

Cover Story West African Banks Negotiate Economic Eddies

ART DIRECTOR Jason Venkatasamy CORRESPONDENT-AT-LARGE Stephen Williams GENERAL MANAGER Leila Ben Hassen ( VP DEVELOPMENT Saliba Manneh ( ADVERTISING SPECIAL PROJECT MANAGER Darren Moore ADVERTISING SALES DIRECTORS Medrine Chitty, James Olweny, Nick Rosefield DISTRIBUTION PRODUCTION MANAGER Richard Briggs PRINTERS Stones Ashford Ltd, The Invicta Press Queens Road, Ashford, Kent, TN24 8HH SUBSCRIPTIONS Abacus e-Media Chancery Exchange, 10 Furnival Street London, EC4A 1YH

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A double-headed celebration

News in brief

Banking sector news from around the continent

Banker’s World 13 Round-up of the last quarter

in Africa’s banking industry

Cover story West African Banks Negotiate Economic Eddies

19 Nigerian Banks remain strong 22 Ghana: How much is too much debt? 24 Senegal creates digital

currency history

despite challenges

26 Ivorian banking optimistic

Talking Point 38 Felix Bipko, CEO, African Guarantee Fund South African Banking 40 Ripples from the Night of the Long Knives 42 Where is S Africa headed after

Gordhan’s dismissal?

Zuma’s reshuffle

48 What they said about President

Talking Point 54 Femi Oyetunji, CEO, Continental Re

Assurance 56 Making African projects bankable

by reducing risk

Talking Point 58 José Filemeno dos Santos, Chairman,

Angola Sovereign Wealth Fund All pictures AFP unless indicated. Registered with the British Library. ISSN 1757-1413 ©2017 IC Publications Ltd N° DE COMMISSION PARITAIRE 0115 T 90333 Dépôt légal Mai 2017

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In Conversation 28 GTBank’s Segun Agbaje

Thought Leadership 60 Building institutional capacity the AFC way

Islamic Finance 34 IMF step up oversight role

Thought Leadership 65 How the AfDB’s Feed Africa strategy

will boost agriculture

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A double-headed celebration


frican Banker magazine is celebrating its 10th anniversary this year. Actually, the first ever issue of the magazine went out into the world during the third quarter of 2007 so perhaps I should have waited until the next issue to pop the cork; but, the very first issue had an innovative wraparound announcing the establishment of the Africa Finance Corporation (AFC), which is celebrating its own 10th anniversary with a high level conference mid-May. Since the Events department of the IC Group (publishers of African Banker) is involved in helping to organise the event on Africa’s infrastructure in Abuja, and since we’ve always had very good relations with the AFC, it seems to make sense that we should both celebrate our anniversaries at the same time. The coincidences don’t end there. Although we had felt for a while that Africa needed a dedicated financial magazine, especially during the tumultuous era in Nigerian banking when the then Central Bank Governor, Charles Saludo, set out on his ‘clearing the weeds’ consolidation exercise. With a few strong swipes, he slashed the number of banks in the country from 89 to 24 and substantially raised the capital requirement. The scramble that followed was worth a TV mini-series but space consideration had restricted the scope of our coverage in African Business magazine in which finance was just one of several sections. In Nigeria, once the lamentations had stopped and the dust had settled, the country’s chaotic, free-for-all banking industry had been tamed. The survivors that

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emerged, all characterised by exceptional management leadership, were ready to take on the world. They had the skills to match their ambitions and this saw the start of the billon-dollar capitalised banks. There was plenty of drama to follow but year by year, we saw Nigerian banks replacing North and South African banks in African Business magazine’s annual rankings. As our cover story on West African banking shows, they now dominate the region, taking 14 of the top 17 places in last year’s rankings. But back to 10 years ago. Big and strong became beautiful. Indigenous, well capitalised banks began to make inroads into big-ticket deals that had hitherto been the exclusive province of foreign banks.

Tender mercies of DFIs

When CEOs were talking ‘expansion’, they were thinking not only nationally, not only sub-regionally, not only pan-African, but globally. It was in this environment that the AFC was born. Despite the crying need for it, financing Africa’s woeful infrastructure had been left to the tender mercies of the international DFIs; no one else wanted to touch it, as they said “with a barge pole”. The founders of the AFC saw it differently. Where there was a demand, there was opportunity. Now that the system had financial muscle, and could get more, the Central Bank of Nigeria helped them to set up a fund dedicated to filling the infrastructure gap. Initial capitalisation was a previously unheard of figure of $1bn. While all these tectonic plates were shifting, it became clear that the whole finance industry urgently needed to vastly

upgrade its communications systems and also a sophisticated pan-African medium to connect up the continent’s hitherto national banking industry silos. What was needed was, indeed, the African Banker magazine. The push for the publication indeed came from Nigerian bankers via the good offices of our friend Christian Udechukwu who persuaded the publishers (Afif and Omar Ben Yedder) that indeed the time had come for a magazine dedicated to African finance. Neither needed much convincing as we had been slowly making our way towards the same conclusion. I had the privilege of becoming the founding editor. The Cover Story of the first issue was an in-depth coverage of the African Development Bank. The then president, Donald Kaberuka, had given me carte blanche to talk to all the directors and we ended up with a splendid cover story. But, as I mentioned, the wraparound announced the formation of the AFC. In other issues of the magazine, we went on to detail what the new corporation was all about. Africa had seen nothing like it and there was a great deal of scepticism. It’s therefore great to publish a guest column by Oliver Andrews, the AFC’s Chief Investment Officer, explaining why investing in African infrastructure pays. The AFC itself has seen a year-on-year jump of over 50% in earnings. So, two celebrations in one year – both starting at the same time and both achieving success in their own aims. But for both, there is still plenty to do. We at African Banker are looking forward to the next exciting 10 years in your company.

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News in brief



The Central Bank of Nigeria’s recently released Financial Stability Report made for uncomfortable reading. One of the headline figures was 14% – the number of nonperforming loans (NPL) in the banking sector at endDecember 2016, up from 5.3% at end-June 2015. Economic conditions in Nigeria took a turn for the worse last year. Africa’s second largest economy experienced negative growth of 1.5%, its worst performance in 25 years, while inflation remains out of each and the naira has tumbled against the dollar. “The deterioration in asset quality was largely attributed to the rising inflationary trend, negative GDP growth, and the depreciation of the naira,” declared the report.

KENYA’S 10 BIGGEST BANKS RECORD A 10.8% INCREASE IN NET PROFIT Banks in East Africa’s biggest economy posted a 10.8% increase in net profits over the year ending December 2016 to KS93.81bn ($909m). This positive performance came against the backdrop of some pretty poor performers amongst the group. Four of the lenders – Equity Bank, Barclays Bank of Kenya, Stanbic Bank and NIC Bank all registered a fall in profit after tax. Equity Bank, Kenya’s largest by market value, recorded its first-ever drop in profits to the surprise of analysts.

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South African investment firm Brait SE has set aside plans to list on the London Stock Exchange (LSE) because of the details of Britain’s decision to leave the European Union remain unclear. “We’re of the view that at this point in time, there’s just too much uncertainty as to exactly how Brexit is going to pan out,” Brait’s head of investor relations Mark Parsons told Reuters. Possible impact on capital markets was also an influencing factor. Brait is currently listed in Luxembourg and Johannesburg.


AFRICAN DEBT A TICKING TIME BOMB, WARN CAMPAIGNERS “Today’s economic indicators are telling a story very similar to the situation in the late 1970s and early 1980s which led to the Third World debt crisis,” warned Jürgen Kaiser, political coordinator at Jubilee Germany, a German NGO at a recent meeting of G20 finance ministers and central bankers. Up to 40 African countries are showing signs of heavy indebtedness according to the NGO and the continent is on the brink of a sovereign debt crisis. Figures compiled by Jubilee Germany show that of the 20 countries with the highest level of foreign debt payments to government revenue, eight are African. Kenya and South Africa, among others, have witnessed debt increase threefold in the decade from 2005.

The Bank of Ghana (BoG) has cut the rate at which it lends to commercial banks from 25.5% to 23.5% following a fall in inflation at the beginning of the year. At 200 basis points, it is the biggest cut by the BoG since 2010 and is expected to boost business activity and incentivise lending. With an eye on meeting a year-end inflation target of 11.2% from the current 13.2%, the BoG saw scope for easing monetary policy.

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06/05/2017 01:25


News in brief investment at $366m for the year. This is a rise by a third from 2015, and far ahead of the dip to $129m previously reported by Disrupt Africa. Three countries accounted for a total of 81.6% of the investment, with Nigeria attracting $109.37, South Africa $96.75m and Kenya $92.7m. Partech included nonAfrican startups whose primary focus is on the continent in its survey. This explains the difference with Disrupt Africa’s figures.

BIOMETRIC CREDIT CARDS TRIALLED IN SOUTH AFRICA Mastercard is trialing a new biometric card in collaboration with South Africa’s Pick n Pay supermarket and Absa Bank. The cards combine chip technology with fingerprints to verify the cardholder’s identity for in-store purchases. For Absa, the biometric card forms part of the bank’s strategy to test and develop sophisticated technology capabilities designed to improve its payment operations and client service, reduce risk, and make banking easier and more secure for its customers. “We are very proud to be the first bank in Africa to test – in a real payment environment – the singletouch authentication technology that will unlock the benefits of biometrics,” said Geoff Lee, head of card and payments at Absa Retail and Business Banking. “Following the test period, we will make it available to our customers in a way that is affordable, reliable, and convenient and, most importantly, extremely secure.” Additional trials are being planned in Europe and Asia Pacific in the coming months.

STARTUPS RAISE $366M IN 2016 A report has found that investment in African startups increased rather than diminished in 2016. Figures from Partech Ventures, the San Franciscobased venture capital firm put

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KENYA’S MOBILEONLY BONDS SELL LIKE HOT CAKES The world’s first government bond to be sold exclusively by mobile phone was issued by Kenya on 23rd March and sold out two days ahead of schedule. The KS150m ($1.45m) pilot scheme offered buying options from as little as $29 and attracted 5,000 investors. This is a promising sign prior to the main KS48.5bn ($470m) offering scheduled for June. The M-Kaibab (Swahili for ‘savings’) bond initiative, with an annual interest rate of 10%, was open to anybody with a mobile money account. Plans for the bond were first announced in late 2015, as a medium to give Kenyans access to the country’s capital markets and boosts the country’s savings rate. Investors can buy and sell the bonds on the Nairobi Securities Exchange via their phones. Coupon payments will be paid directly to their phones. As with M-Pesa, both smartphones and basic features phones can be used. The platform will also rapidly increase transaction time, with trades that previously took an average of two days made instantly via mobile. The funds raised will be used to for Kenya’s development programme.

Sub-Saharan Africa will receive $57bn in financing through the next three fiscal years, the World Bank announced at a meeting of finance ministers and central bankers in March. Of that, $45bn will come from the International Development Association, which provides interest free loans to the most challenged developing regions. The package will also include $8bn of private sector investment from the International Finance Corporation. World Bank President Jim Yong Kim said the money would be put towards existing projects in education, health, sanitation, agriculture, infrastructure and institutional reform. There will be a change in the World Bank’s approach too, Kim said: “Another thing that we will never go back to is the bad old days when the World Bank and other organisations told countries what to do. We don’t do that anymore.”

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10 A F R I C A N B A N K E R 2 N D Q U A R T E R 2 0 1 7

News in brief

UNITY BANK POSTS N84B GROSS EARNINGS Nigeria’s Unity Bank has posted gross earnings to the year ending December 2016 of N84bn ($266.5m) and profit after tax of N2.2bn ($6.9m). Gross earnings for the year grew by 7%, driven largely by growth in transaction-based income, although profit after tax was down 53% from 2015. Operating expenses dropped by 3% to N26bn ($82.5m). This represents a significant step by the bank in maximising derived benefits through the efficient allocation of resources and cost containment initiatives embarked upon by the new management. The bank’s Managing Director/CEO, Tomi Somefun said: “The key performance indicators point to increasing resilience in the face of challenging economic headwinds that characterised the operating environment in 2016.”

KCB GROUP OFFERS STAFF EARLY RETIREMENT In a move calculated to help it adapt to a rapidly changing banking environment, Kenya’s KCB Group has announced a voluntary early retirement programme for its employees which it says will help it save KSh2bn ($19m) per annum in staff costs. Employees who take up the programme will receive at least three months pay and family access to medical insurance cover for the rest of the year.

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“The programme is expected to align the competing needs of adapting to a banking industry whose outlook has been dimmed by legislative and regulatory reforms, and fast evolving technology platforms that are now attracting non-traditional players into the financial services sector,” said KCB Chief Executive Joshua Oigara.


NEW EXCHANGETRADED FUND OFFERS INVESTMENTS ACROSS MULTIPLE AFRICAN EXCHANGES The Big50 Ex-SA ETF, an exchange-traded fund (ETF) launched on the Johannesburg Stock Exchange (JSE) on 20th April, offers investments across multiple African exchanges. It is offered by Cloud Atlas Investing, a Johannesburg-based collective investment scheme. ETFs track the performance of a basket of shares, bonds or commodities. The Big50 Ex-SA ETF tracks an index of 50 companies in countries such as Egypt, Mauritius, Kenya, Morocco, Tanzania, Nigeria, Tunisia, Botswana, Namibia, Uganda, Ghana and Zimbabwe, as well as the BRVM Exchange in West Africa. ETFs offer tax and cost benefits, and are a suitable investment vehicle for both individual and institutional investors. The ETF market has seen steady growth globally. This ETF listing brings the total number of ETFs listed on the JSE to 53, with a total ETF market capitalisation of almost R73bn ($5bn).

The Mastercard Center for Inclusive Growth has confirmed its commitment to a grant of up to $1m over three years to support the growth of small business owners in Rwanda. Mastercard has partnered with the African Entrepreneur Collective (AEC), locally known as Inkomoko. The team develops and grooms entrepreneurs in industries such as technology, agriculture and energy – three of East Africa’s biggest and fastest growing sectors, and priorities in Rwanda. What makes the partnership between Mastercard and Inkomoko unique is the support of both Rwandan nationals and some of the 160,000 refugees currently living in Rwanda. In collaboration with the United Nations Agency on Refugees (UNHCR), the Ministry of Disaster Management and Refugee Affairs (MIDIMAR) and Mastercard Center for Inclusive Growth, Inkomoko will roll out a programme aimed at fostering the social and economic independence of refugees in Rwanda.

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AFRICAN CEOS CONFIDENT OF GROWTH A survey by PwC has found that 91% of African CEOs are confident about the growth prospects of their own company in the medium term. Despite current economic uncertainties, this is the highest level of confidence the professional services firm has found since it began its research on African CEOs in 2012. PwC attributes much of the optimism to the fact African CEPs tend to look to the upside and seize on the opportunities uncertainty brings. However, CEOs are nonetheless concerned about economic growth and the impact this will have on their business. “It is no longer enough for business leaders to steer

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their organisations through a complicated and challenging environment – they will need to adapt swiftly to change,” commented Dion Shango, Chief Executive Officer of PwC Southern Africa.

MORE FUNDING FOR NIGERIAN FINTECH FIRM Nigerian FinTech platform Lidya has closed a $1.25m funding round that will allow it to expand its service for small and medium enterprises. The firm uses digital algorithms to build credit scores and facilitate finance for emerging businesses. The funding round was led by Accion Venture Lab, which invests primarily in FinTech firms offering support to the SME sector. The International Finance

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Corporation estimates that the financing gap for emerging market micro, small and medium enterprises stands at more than $2 trillion. Lidya is working with firms across Nigeria’s agriculture, consumer goods and creative sectors in a bid to close the yawning gap. The platform, which says it has registered 20,000 businesses, is targeting N1.5bn ($4.7m) in loan originations during its first year of operations. It will use the additional funding to develop its products and boost its team.

WORLD BANK SUPPORTS DIGITAL STARTUPS The World Bank has launched a five-month programme to support 20 of the continent’s most promising digital startups.

XL Africa will give the chosen businesses access to global and local experts while aiming to seal tie-ups with corporate partners and investors. The initiative is expected to help the start-ups attract early stage capital of between $250,000 and $1.5m. Entrepreneurs will undergo a two-week residency in Cape Town, where they will meet angel investors and attempt to boost their visibility. Major African cities, including Lagos and Nairobi, are increasingly vying to attract young, internet-savvy entrepreneurs. According to a recent report by Disrupt Africa, the number of tech start-ups that secured funding increased by 16.8% in 2016 compared to the previous year.Yet the continent’s internet penetration levels remain low outside major urban areas, and many start-ups struggle to attract early-stage financing.

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Because we’ve covered the story from every angle.

We’ve never taken sides in any war, revolution or election.

We’ve reported the facts whatever the obstacles.

And we always champion the truth.

We’ve always asked the difficult questions.

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FDI – MIXED PICTURE SAYS EY REPORT According to EY’s latest Africa At-

tractiveness report, heightened geopolitical uncertainty and ‘multispeed’ growth across Africa present a mixed FDI picture for the continent. The index was introduced in 2016, to measure the relative investment attractiveness of 46 African economies based on a balanced set of shorter and longer-term metrics. This year’s report provides an analysis of FDI investment into Africa over the past 10 years. The 2016 data shows Africa attracted 676 FDI projects, a 12.3% decline from the previous year, and FDI job creation numbers declined 13.1%. However, capital investment rose 31.9%. The surge in capital investment was primarily driven by capital intensive projects in two sectors, namely real estate, hospitality and construction (RHC), and transport and logistics. The continent’s share of global FDI capital flows increased to 11.4% from 9.4% in 2015. This made Africa the second-fastest growing FDI destination by capital. Ajen Sita, Africa CEO at EY says: “This somewhat mixed picture is not surprising to us. Investor sentiment toward Africa is likely to remain somewhat softer over the next few years. This has far less to do with Africa’s fundamentals than it does with a world characterised by heightened geopolitical uncertainty and greater risk aversion. Investors with an existing presence in Africa remain positive about the continent’s longer-term investment attractiveness, but they are also cautious and discerning.” In a sign of ongoing diversification of Africa’s FDI investors, more than one fifth of FDI projects and more than half of capital investment into Africa came from Asia-Pacific in 2016, an all-time record. Most notably, Chinese FDI into Africa

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increased dramatically, making the country the single largest contributor of FDI capital and jobs in Africa in 2016. Egypt, Kenya, Morocco, Nigeria and South Africa collectively attracted 58% of the continent’s total FDI projects in 2016. South Africa remains the continent’s leading FDI destination, when measured by project numbers, increasing 6.9%. Morocco regained its place as Africa’s second largest recipient with projects up by 9.5%, followed by Egypt, which attracted 19.7% more FDI projects than the previous year.

New investment hubs

Although foreign investors still favour the key hub economies in Africa, a new set of FDI destinations is emerging, with Francophone and East African markets of particular interest. Despite having a 31.7% decline

Above: Chinese and local workers build a high-voltage powerline in Côte d’Ivoire.

in FDI projects in 2016, and weak growth in recent years, West Africa’s second largest economy, Ghana, remains a key FDI market. The country’s improving macro-economic environment and strong governance track record has seen Ghana rise to fourth position in the EY Africa Attractiveness Index (AAI). Staying in West Africa, Côte d’Ivoire also features in the top 10 of the AAI, and with a 21.4% jump in FDI projects in 2016, this illustrates that it’s becoming a country more favoured by investors. Also in the West, Senegal has emerged as a potential major FDI destination although this is not reflected in its current FDI numbers. It does however rank strongly on the AAI 2017, taking eighth position, due to its diverse economy, strong strides in macro-economic resilience and progress in improving its business environment. Sita concludes, “By 2030, Africa remains on track to be a $3 trillion economy. However growth needs to become more inclusive and sustainable to eradicate poverty at the levels that are required. “If we accept the reality that physical connectivity – enabled by regional integration and the development of physical infrastructure – will remain a key stumbling block to inclusive growth across Africa for at least the next decade, then the need to actively embrace digital connectivity becomes critical. “However, efforts to harness the potential of digital technologies as a fundamental driver of inclusive growth are still far too piecemeal and fragmented. “What is required is a far more collaborative effort between governments, business and non-profit organisations to adopt technological disruption, and create digitally enabled offerings with a particular focus on health, education and entrepreneurship.”  FN

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NNANNA REPLACES SARAH ALADE AT AFC Joseph Nnanna, Central Bank of Nigeria (CBN) Deputy Governor, Financial System Stability, has replaced Sarah Alade as Chairman of the Africa Finance Corporation (AFC), the continent’s foremost pan-African multilateral development finance institution. The former Chair, Sarah Alade, officially retired on 22nd March from the CBN as Deputy Governor, Economic Policy. She has also stepped down from her position as Chairman of the AFC Board of Directors. Nnanna has over three decades’ experience as an economist and banker. During his career, he has served as a consultant to the government of Nigeria, the UN’s Conference on Trade and Development, and on the board of the International Monetary Fund (IMF). He attended William Paterson University in Wayne, New Jersey, and the University of Houston, in Houston, Texas from 1975 to 1980, where he studied finance, public policy and economics. He graduated with BA, MA and PhD degrees. His international work experience started with his appointment to the IMF. From 1989 to 1994 he worked in its Africa Department and participated in multilateral surveillance missions to several African countries including Kenya, South Africa, Lesotho and Seychelles. He was appointed as an Advisor to the Governor of the CBN in 1994 and in 2001 became its Director of Research and Statistics. He was involved in the policy formulation process which culminated in the liberalisation and deregulation of Nigeria’s financial system.

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From 2006 to 2008 he was Director-General of the West African Monetary Institute, the agency responsible for implementing the second West African Monetary Zone. He also served as full-time consultant to the government of Nigeria as a technical assistant to the National Economic Management Team and the Presidential Steering Committee on Global Economic Crisis. He was also a part-time consultant to the United Nations Conference on Trade and Development (UNCTAD). From 2012 to 2014, he served as the Alternate Executive Director, representing Nigeria and 21 other sub-Saharan African countries on the board of the IMF. He is an author/co-author of five books and over 40 published articles. Dr Nnanna has served on the boards of many organisations and belongs to several professional societies. He is a recipient of the Nkwame Nkrumah Africa Leadership Award.

CAMEROON’S VERA SONGWE TAKES OVER FROM CARLOS LOPES AS HEAD OF UNECA UN Secretary-General António Guterres has appointed Vera Songwe of Cameroon as the next Executive Secretary of the United Nations Economic Commission for Africa (UNECA). She succeeds Carlos Lopes of Guinea-Bissau who served in the post for seven years. The SecretaryGeneral expressed his gratitude to commitment and dedicated service to the organisation. Songwe brings to the position a longstanding track record of policy advice and results oriented implementation in the region, coupled with a demonstrated strong and clear strategic vision for the continent. She is currently Regional Director Africa covering West and Central Africa for the International Finance Corporation and non-resident Senior Fellow at the Brookings Institution’s Global Development and Africa Growth Initiative. She was previously Country Director for Senegal, Cape Verde, The Gambia, Guinea Bissau and Mauritania at the World Bank (2012–15), Adviser to the Managing Director of the World Bank for Africa, Europe and Central Asia and South Asia Regions (2008–11) and Lead Country Sector Coordinator and Senior Economist, Philippines (2005–08). She joined the World Bank as a Young Professional. Born in 1968, she holds a PhD in Mathematical Economics, Center for Operations Research and Econometrics, a Master of Arts in Law and Economics and a Diplôme D’Etudes Approfondies in Economic Sciences and Politics from the Université Catholique De Louvain, and a Bachelors of Arts degree in Economics and Political Science from the University

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A F RI CA N B A N K E R 2N D Q UA RT E R 2 017 15

of Michigan. She is also a graduate of Our Lady of Lourdes College in Cameroon.

KAMAU TAKES OVER AS CEO OF FUSION Fusion Capital, the East African private equity and real estate investment firm has announced that Daniel Kamau is taking over from Luke Kinoti as CEO. Kinoti the firm’s CEO since 2006 when he co-founded the company with Philip Goodwin, is retiring. The firm’s real estate portfolio consists of several high-profile developments including Kigali Heights in Rwanda, Grande Park Estate in Nakuru, Kenya and the Gold Mark Properties in Uganda. It was announced that in March the company had acquired a 75% per cent stake in Thika Royal Palms, a subsidiary of Hand in Hand Development Group that specialises in construction and farming. Kamau holds a double major degree in accounting, business administration and management and is in the final stages of his MBA in Finance.

BAIRD TO HEAD INVESTEC’S AFRICAN PE Investec, the UK-South African bank and fund manager has added a former Standard Chartered banker to its ranks in a new role heading up its African private equity business. Peter Baird, a former McKinsey partner who was with Standard Chartered for five years and led its $900m African private equity business until he left last November, joined Investec earlier this month. He takes charge of a 10-year-old business running $450m in two

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BOAMAH REPLACES LÉAUTIER AT AFDB The African Development bank has appointed Charles O. Boamah as Senior Vice-President (below). He replaces Frannie Léautier, who is stepping down due to family reasons. Boamah served as Vice-President and CFO of the Bank for the past six years. He comes into the new role with solid first-hand understanding of the finances, operations and administration of the Bank. Over the past six years, Boamah has successfully led major resource mobilisation drives for the Bank, including the most recent replenishment of the African Development Fund; the establishment in 2015 of the Africa Growing Together Fund; a $2bn co-financing facility; successful negotiation of a $3bn co-financing facility under the Enhanced Private Sector Assistance Facility for Africa, among others. He led the task force for the establishment of Africa50, an innovative vehicle for accelerated infrastructure delivery in Africa. Boamah currently chairs the Governing Council of the African Legal Support Facility and the Steering Committee of the African Financial Markets Initiative. He also serves on the Board of Directors of Africa50 and the Board of Governors of the Eastern and Southern African Trade and Development (PTA) Bank. The President of the African Development Bank, Dr. Akinwumi Adesina, said of the appointment, “Charles Boamah brings extensive development finance experience and a solid understanding of the Bank's finance and operations. He has done a remarkable job as VicePresident for Finance.”

Africa-focused funds, which are managed by William Alexander and Mark Jennings. The business has been overseen until now by Francois van der Spuy, overall head of private market investments at Investec Asset Management. In a statement announcing the recruitment on March 22nd, Domenico Ferrini, co-chief investment officer at Investec Asset Management said: “While we are a global investment firm, our heritage and presence in Africa means that we are not only well placed to share our investment insights with clients, but committed to the long-term future of the continent.” Investec closed its second Africa private equity fund in February, raising $295m. The funds can invest in companies outside Africa; in October Investec acquired a 33% stake in a Berlin-based solar power operator, Mobisol, which installs rooftop solar systems in Tanzania, Rwanda and Kenya, and plans to expand further on the continent.

ZEMEDENEH NEGATU JOINS FAIRFAX AFRICA Zemedeneh Negatu, who for a decade and a half was known across the continent as ‘Mr EY’ (Ernest & Young), has moved on and is now Global Chairman of Fairfax Africa Fund. During his time with EY, Negatu was a very familiar figure at conferences, conventions, seminars and most international meetings involving African business and investment issues. He was much sought after as a highly influential speaker, panellist and commentator as his views were always fresh, deeply considered and pragmatic. He was also seen as an unofficial ambassador of his country, Ethiopia – expertly pointing out investment opportunities and successes.

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Readers of African Banker and African Business magazines would have come across several of his commentary pieces in the publications over the years. He has also been one of the continent’s most dynamic deal makers, with a string of successes to his credit including bringing Ethiopian Airlines up to global best practice levels, the $225m Meta Brewery M&A deal for Diageo Plc of the UK, the world’s largest spirits drinks maker, and several other major cross-border investment transactions in Africa. In 2015, Negatu was selected as one of 15 Top African CEOs to watch by African Business. The magazine identified 15 African business leaders positioned to take advantage of the continent’s opportunities and “wellequipped to ride the technological, demographics and social trends that will drive Africa’s development.” He won several awards including CEO magazine’s award for Finance and was recognised as one of the 100 Most Influential Africans of 2013 by New African magazine. He now takes over as global chairman of Fairfax Africa Fund, a USbased investment firm specialising

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DELE BABADE APPOINTED SSA CARLYLE ADVISOR Global alternative asset manager The Carlyle Group announced that Dele Babade (above) has been retained as an Advisor to Carlyle’s Sub-Saharan African Fund (CSSAF). The group described him as “a seasoned investor with close to 30 years’ experience working in financial markets, gained mostly in Africa, Babade brings a wealth of experience across a range of sectors on both the buy-side and sell-side.” Babade was previously CEO at Ecobank Capital and a member of Ecobank’s Group Executive Committee. He also held senior positions at Midland Montagu (now HSBC Investment Bank), Nomura International and Citigroup. In his role, Babade will provide advice to Carlyle’s Sub-Saharan Africa team on investment opportunities and partnerships

across the continent, as well as existing portfolio investments, to help Carlyle invest wisely and create value across a range of industries. Babade will also continue to devote time to various roles outside the firm. Eric Kump, Carlyle Managing Director and Co-Head of CSSAF said, “We are delighted that Dele has chosen to partner with us, as he brings a wealth of experience investing across Africa. Dele’s background perfectly complements that of our onthe-ground teams in Lagos and Johannesburg, and will help us continue to strengthen our business across the region as we look for new opportunities to create value for our investors.” Babade earned his Bachelor of Laws from University of London, followed by a Masters in International Finance and Banking Laws from University College London. He was admitted as a Barrister and Solicitor of The Supreme Court of Nigeria, and Barrister of England & Wales.

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in high growth emerging markets. The firm’s global portfolio includes investments in infrastructure, technology and real estate.

O’DONOHOE IS NEW CEO OF CDC GROUP The Board of CDC Group plc, the UK’s development finance institution, announced that it has selected Nick O’Donohoe as its new CEO. He will lead CDC as it continues to scale up its work to help build businesses and create jobs in Africa and South Asia. He joins CDC from the Bill and Melinda Gates Foundation, where he is a Senior Advisor.  O’Donohoe has considerable experience in the financial and

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investment sector.He has been an innovator in impact investing, and has a passion for international development. In 2011, he co-founded Big Society Capital, which was established by the UK Government as ‘the world’s first social investment bank’. Graham Wrigley, Chairman said: “Nick has the perfect balance of skills and experience. He understands the transformative effect that investing can make to peoples’ lives.  He has a proven track record of building market-leading businesses from both start-up and within large financial service groups, and has dedicated the last seven years of his career working in impact investing.  “Nick has exactly the right style of leadership, experience and values to lead CDC as we continue to be

ambitious in supporting essential economic development in Africa and South Asia that will help people escape poverty for good.” Nick O’Donohoe said: “I am very excited to get the opportunity to lead CDC at this important point in its history. The capital that the organisation provides has never been more important in supporting economic development and job creation in Africa and South Asia. I am looking forward to helping CDC continue to grow, to innovate and to transform lives in some of the world’s poorest regions.” O’Donohoe will join in June 2017, subject to formal approval from the Financial Conduct Authority and following a transition handover from Diana Noble. n

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West African banks negotiate economic currents The widely diverging fortunes of West Africa’s biggest economies are having profound implications for the region’s banks. Nigeria’s current economic difficulties have attracted a great deal of attention in recent months, particularly as the country is in the middle of its first recession in a quarter of a century, but its banking sector remains the strongest in the region. Ghana’s economy is still growing but rising debt levels are undermining confidence; Côte d’Ivoire is one of continent’s standout economic performers while Senegal’s economy has quietly moved into the continental top bracket; and the IMF believes that the economy of the West African Economic and Monetary Union, which covers most of Francophone West Africa, remains strong despite exhibiting increased vulnerabilities. Our cover story examines the current state of banking in West Africa and reads the runes on the near future. Report compiled by Neil Ford.

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F E AT U R E : C OV ER S TO RY: W E S T A F RI CA Last year Nigeria fell into recession and the value of its currency came under pressure. However, the country’s banks have announced surprisingly good results.

Nigerian banks remain strong despite economic woes


n 2016 Nigeria went into recession, the value of the stock exchange dived and the currency came under great pressure. Nevertheless, the country’s banks have announced surprisingly good results. It is impossible to assess the performance of the Nigerian banking sector without reference to the current state of the national economy. The immediate causes of the recession are obvious: low oil prices and low oil production. The other major long-term cause is the country’s massive dependence on oil revenues. Successive governments, including the current administration of President Muhammadu Buhari, have pledged to tackle this and some progress has been made, including in the banking sector itself, but much more is required if the country’s banks are to enjoy and support a much more diverse economic base. All this resulted in a 1.5% fall in GDP last year, plus a 40% fall in the value of the Nigerian Stock Exchange (NSE) in US dollar terms. High inflation has forced the Central Bank of Nigeria (CBN) to push its main lending rate up to 14% but it failed in its expensive efforts to defend the naira. The crisis has resulted in a shortage of foreign currency, with knock-on effects for the banking sector. Much has been made of the reduction of South Africa’s sovereign debt rating to a notch below investment grade but Nigeria’s sovereign debt is currently rated at B1 by Moody’s, four levels below investment grade. The country’s banks are performing surprisingly well in the face of the downturn. Access Bank, United Bank for Africa (UBA) and Zenith Bank all registered profit and revenues increases for 2016. GT Bank achieved 37% rises for both annual pretax profits and gross earnings for 2016: the former increased to N165bn ($540m) and the latter to N302bn ($998m). Segun Agbaje, GT Bank’s chief executive and managing director, said: “The bank’s financial performance in 2016, does not only reflect the resilience of our franchise, it demonstrates the fundamental strength of our businesses to deliver sustainable long

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Access Bank, United bank for Africa, (UBA) and Zenith Bank all registered profit and revenues increases for 2016.

The value of the naira has been under great pressure.

term growth. We successfully navigated the heightened economic uncertainty and regulatory headwinds which dominated the year to deliver a solid performance across all financial and non-financial indices.” (See interview, page 30.) Zenith’s gross total assets increased from N4 trillion ($13.1bn) in 2015 to N4.739 trillion ($15.5bn) last year, while its post-tax profits rose from N105bn ($344m) in 2015 to N130bn ($426m), a 23% rise in posttax profits. UBA’s gross earnings increased from N315bn ($1bn) in 2015 to N384bn ($1.3bn) last year, while its profits reached N91bn ($298m), a 32% rise on the previous year. Finally, Access Bank achieved a pre-tax profit of N90bn ($295m) and total income of N381bn ($1.2bn), increases of 20% and 13% respectively. These figures were partly the result of Nigerian banks increasing

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C OV ER S TO RY: W E S T A F RI CA their operations outside Nigeria but the lion’s share of their revenues and profits were still earned domestically.

Strong banks, weak economy?

Moreover, Nigerian banks were rated strongly in last year’s Lafferty Bank Quality Ratings. The Lafferty Group uses banks’ annual reports to make its assessments, arguing that this is the most credible approach because they are audited, regarding investor presentations as merely PR. The company looked at 100 banks that were the biggest by market capitalisation in the 28 countries that it examined. Only one bank anywhere in the world received a five star rating: South Africa’s Capitec. Nigeria’s Sterling Bank was one of 14 banks to attract four stars, while Access, Diamond, Fidelity, First Bank of Nigeria, Guaranty Trust Bank, UBA and Zenith were all awarded three stars. Nigeria’s large banks still have an average capital adequacy ratio of 15.47%; mediumsized banks average 12.75%; and small banks have a ratio of just 3.14% putting them at most risk. The CBN defines large banks as those with assets in excess of N1 trillion ($3.3bn); medium-sized banks as those with between N500bn (1.6bn) and N1 trillion; and small banks as those with less than N500bn. However, the CBN says that there is a risk of contagion “through unsecured interbank exposure as three banks including two systemically important banks failed a capital adequacy ratio tests after the 10% default shock.” Large banks control 88% of the country’s combined loan book, while oil and gas sector loans account for 30% of all debt. Domestic oil and gas companies have become far more active in the industry over the past few years, gaining financing from Nigerian banks among others.

Cause for concern

Nigerian banks have announced surprisingly good results in recent times. Nevertheless, some figures are deteriorating quickly enough to cause some concern. The CBN has set a maximum non-performing loan (NPL) ratio of 5% but the industry has consistently failed to achieve this level. The average NPL ratio stood at 5.3% at the end of 2015, but had rocketed to 14% by the end of last year. The CBN found seven banks operating below the country’s statutory capital adequacy ratio (CAR) when it carried out one of its regular stress tests on the country’s banks in April. The CBN’s minimum levels are 15% for banks with international authorisation and also systemically important banks (SIBs), which are often the same financial organisations, plus 10% for all other banks. The CBN is sensible to watch the sector carefully,

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given the fact that five of the country’s 24 banks became insolvent as recently as 2009 and there was no economic contraction at that time. In addition, an IMF report in early April found that three Nigerian banks had a CAR well below the regulatory threshold, although it did not name them. Some of them may need to seek funding from the capital markets, although this could be difficult at this time of illiquidity. Other indicators have similarly deteriorated. Yet banking system assets still only stand at 30% of GDP, less than in most other parts of Africa, so the banking sector is still smaller than it should be. Despite the strength of Nigerian banks, the state of the national economy cannot fail to influence their operations. In February, Zenith Bank announced that

The Nigerian government is offering such good rates on bonds and Treasury bills that the country’s banks would rather tie their money up in state debt than lend to businesses or consumers. it planned to raise up to N100bn ($328m) but reversed its decision just six weeks later because of doubts over the health of the country’s capital markets. A Zenith spokesperson said “The request for shareholders’ approval to raise fresh capital has been withdrawn”, after its annual general meeting in Lagos.

Easy lending pickings

Paradoxically, the government’s financial difficulties could be part of the reason behind the banks’ success, as it is proving to be a good customer. As government 12 month T-bills offer yields of 18.74% and even 10 year bonds offer 16.3%, there is less incentive for the banks to take a risk on loans to the private sector. This may be good for the banks’ balance sheets but is not such good news for the economy as a whole. Akintunde Majekodunmi, a banking analyst at Moody’s Investors Service, commented: “The Nigerian government is offering such good rates on bonds and Treasury bills that the country’s banks would rather tie their money up in state debt than lend to businesses or consumers. Banks in Nigeria have a reduced incentive to lend to the private sector because of the favourable interest on government securities. They have increased appetite for government securities, which may cannibalise private sector credit.” However, all of Nigeria’s big banks have been hit by Abuja’s decision to create the Treasury Single Account (TSA) to replace thousands of other state bank accounts. It is hoped that that strategy will reduce the scope for corruption and also government banking


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Battling the forex crunch The Central Bank of Nigeria (CBN) is doing everything within its powers to stabilise the naira against world currencies, especially the dollar, and attract foreign investors. Within two weeks in April, the CBN floated two foreign exchange windows – the Investors’/Exporters’ FX Window and Small and Medium Enterprises’ (SMEs’) FX Window. The former was established to boost liquidity in the forex market and ensure timely settlement for eligible transactions. As at early May, the naira, which trades at 306/$ at the official market rate, remains at 390/$ in the parallel market, despite these interventions. To solve the problems, the CBN has sold more than $3bn to different sectors of the economy, including weekly interventions to the bureau de change (BDC) segment of the market. Each BDC now gets $40,000 weekly, to enable them take settle forex needs at the retail end of the market. Aminu Gwadabe, president of the Association of Bureaux De Change Operators of Nigeria, said that despite these measures, foreign investors have shunned the Nigerian market, making it difficult for the economy to attract the right dollar volumes to stabilise the naira. According to Alvan Ikoku, CBN’s director in charge of financial markets, invisible transactions such as loan repayments, loan interest payments, dividends/income remittances, capital repatriation, management service fees and consultancy fees are accommodated in the Investors’/ Exporters’ FX Window. However, the SMEs’ FX Window, allows each SME to receive $20,000 per quarter to import eligible finished and semi-finished items. Ikoku explained that the supply of forex to the window is through portfolio investors, exporters, authorised dealers and other parties with foreign currency to exchange to naira. Isaac Okorafor, CBN’s acting director, corporate communications, said the special intervention for SMEs was necessitated by its finding that a large number of SMEs were being crowded out of the forex space by large firms. Under the special arrangement, enterprises with between 10 to 199 employees and asset base of between N5m to less than N500m will be able to import MN eligible items within the approved threshold. 

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costs. Yet it should also end a significant proportion of the banks’ business, while also placing a huge burden on them in terms of transferring money into the TSA. In addition, the short-term loans that they had provided to state governments have been transformed into lower cost sovereign bonds. Despite Nigeria’s economic difficulties, there were six Nigerian banks among the top 20 in the most recent African Business Top 100 African Banks survey. West Africa held up fairly well in the rankings, with combined Tier 1 capital of $18.8bn, down just $600m on the previous year’s figure. Indeed, Nigeria was the only country anywhere between North Africa and South Africa to feature in the top 20, although Pan-African Ecobank International, which is headquartered in Togo, also featured. Zenith was the biggest Nigerian bank in the African Business survey but 14 Nigerian banks made it into the top 17, underlining the huge dominance of Nigerian banks in the region. One of the three big credit rating agencies, Moody’s, assigned ratings to four Nigerian banks in September for the first time: First Bank of Nigeria (FBN), Guaranty Trust, United Bank for Africa (UBA) and Zenith, which collectively account for almost half of the country’s banking sector by assets. It gave Zenith, UBA and Guaranty Trust ratings of B1 with a stable outlook, while FBN was assigned B2 with a negative outlook. The inclusion of the four banks reflects investor interest in emerging markets, even though this has been tempered by lower growth prospects in most countries.

Cross-border investment

Nigerian banks now play a big role in promoting banking competition across West Africa and indeed across the continent as a whole. They have joined South African, Moroccan, Kenyan, British and French banks, plus West Africa’s own Ecobank Transnational in setting up cross-border operations. No bank yet boasts a branch in every African country and commercial considerations come first but the competition is certainly intensifying. Many banks may wait until the continental economy fully rebounds but those that expand now could be best placed to take advantage of the upturn. Among Nigerian banks, UBA now operates in 22 countries, including 19 in Africa, and has more than 11m customers. A spokesperson said that this pattern is replicated among the country’s other big banks. If Nigeria’s economic woes continue unresolved, the country’s banks may come to increasingly rely on their operations elsewhere in West Africa and further afield. The reputation of Nigerian banks has certainly improved since the turn of the millennium, in large part because of the regulation and cajoling of the CBN.

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With 17.4% of loans classed as non-performing, Ghana’s banks need to make more provision for bad loans. The first task of the new central bank governor will be get them to improve their capital levels.

Ghana: How much is too much debt?


hana’s economic position is particularly interesting. The New Patriotic Party government regained power in January, pledging to bring spending under control, create more employment and boost growth. The economy is still growing strongly but rising debt levels have undermined confidence in the country. Ghana’s economy has been growing steadily over the past 20 years but when oil was discovered the government seemed to get ahead of itself in taking on debt to finance new projects, fuelling inflation and creating a big deficit. The budget deficit was a dangerous 8.7% of GDP last year. Ghana’s Finance Minister Ken Ofori-Atta said that the government’s first aim was to make sure that the

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national debt was brought under control. Total public debt stood at C122.3bn ($29.1bn) at the end of 2016. In February, the government announced that public finances were in a worse state than expected as it had found $1.5bn in unexpected spending by the previous administration. With debt spiralling for both the government and the nation’s banks, Ghanaian banks are experiencing a difficult time. Abdul Nashiru Issahaku resigned as governor of the central bank, the Bank of Ghana, at the end of March, and has been replaced by Dr Ernest Addison. His task will be to cajole Ghanaian banks into improving their capital levels and provide some stability while the new government seeks to get the economy back on course.


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Oil revenues have been lower than expected because of slower growth in production and depressed international prices. However, the Tweneboa, Enyenra and Ntomme (TEN) project is now being developed, with the Sankofa oil and gas field set to follow suit. All this has profound implications for the banking sector. The NPP’s has pledged to cut taxes in order to promote private sector growth. The medium-term scope for banks to expand their operations will depend on the government’s ability to encourage more rapid growth in the private sector. There is a temptation for banks to take the easy money by relying too heavily on lending to the state. However, Ghanaian banks are barred from lending more than 5% of the previous year’s revenue to the government. This restriction should also encourage greater lending to the private sector. However, it has also set aside money to finance its election pledges to build new dams and factories around the country, while providing free education. Attempting to cut taxes while introducing new spending would seem to run contrary to the government’s plan of doing a better job of bringing the national debt under control. After presenting his first budget in March, Ofori-Atta said: “The budget will set the pace for job creation and accelerate growth by encouraging the private sector. We will shift the focus of economic management from taxation to production. This will reduce the cost of doing business.” A petroleum hedging mechanism is also to be introduced to cope with fluctuating oil prices and the government has set a target of achieving average inflation this year of 11.2% and 8% from next year onwards. Unlike in Côte d’Ivoire, inflation is a real problem and averaged 13.3% last year. Yvonne Mhango, an economist at Renaissance Capital, commented:. “It’s a pro-business government that have demonstrated that they want to restore growth. Whatever policies come, going forward, will be ones that will be supportive for growth.”


Last year, the Bank of Ghana informed the IMF that some of the country’s banks had capital levels below the industry minimum requirements. The IMF has asked the central bank to make sure that the banks concerned prepare “credible and time-bound recapitalisation plans” to correct the situation because of the way it could “adversely affect credit and the real economy”. According to Bank of Ghana figures from December, 17.4% of total loans were non-performing, including 8.4%, or C518.9m ($123.7m), which had already been categorised as losses. This very high rate is putting pressure on the entire industry and so the central bank has asked them to make more provision

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Total public debt stood at C122.3bn ($29.1bn) at the end of 2016

$29.1bn for their bad loans. New governor Addison served as director of research at the Bank of Ghana between 2003 and 2011 and subsequently as lead regional economist for the African Development Bank at its Southern African Resources Centre. He was thrown in the deep end during the early days in his new post with a visit to the IMF/World Bank spring meetings in Washington in late April. Speaking there, he said: “This recapitalisation plan by these banks needed to be credible and we are hoping that in the next few weeks, on the basis of the report that they submit, some decisions will be taken by the Bank of Ghana.” Ghanaian banks have also been affected by the falling value of the cedi. It was the second worst performing currency in the world after the Sierra Leonean Leone over the first three months of this year. Responding to the debate over currency controls, Addison said: “In terms of the determination of the exchange rate, Ghana has had an auction system before – so what we have seen was an improvement up on the auction system, in the development of an interbank market, and we have argued that it is important for us to strengthen the interbank market with foreign exchange.”

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C OV ER S TO RY: W E S T A F RI CA Senegal has now joined the club of strong African economies and looks set to move even higher; it has become the second country in the world to launch a national digital currency.

Senegal creates digital currency history

Right: Casablanca, the financial heart of Morocco.


he rest of West Africa is often overlooked but it is worth considering, not least because of the growing cross-border scope of the region’s biggest banks. The IMF believes that the economy of the West African Economic and Monetary Union (WAEMU), which covers most of Francophone West Africa, remains strong but exhibits increased vulnerabilities. Senegal is embarking on an interesting experiment that could either provide big opportunities or great competition for the nation’s banks. In December, it became only the second country in the world, after Tunisia, to launch a national digital currency. It will have the same value as the CFA franc and can be stored in all mobile money and e-money wallets. Given current optimism over the country’s economic prospects, these are exciting times for Senegal and Senegalese banking. Very quietly and with little fuss, Senegal has joined the ranks of Africa’s fast growing economies, alongside Kenya, Tanzania and Côte d’Ivoire. GDP increased by

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6.5% in 2016, the fastest rate for 11 years, and the IMF forecasts annual growth of 7% for this year and next. The government is currently revising the basis on which it calculates its GDP. It previously used 1999 as its baseline but Finance Minister Amadou Ba expects a 30% increase in the size of the economy when the process is completed. Above all else, Dakar has achieved what few other governments can lay claim to: it has actually done what it said it was going to. The government has slowly reduced its fiscal deficit from 5.5% in 2013 to 4.2% in 2016 and is on track to reach 3% by 2019, which is the medium-term target for the WAEMU. It has also managed to reach its budget targets. Senegal has the prospect of becoming a significant oil and gas producer in the near future. Kosmos Energy has discovered the Tortue Field with an estimated 15 trillion cu ft of natural gas at present but up to 50 trillion cu ft has been suggested. This would be sufficient to fuel a huge liquefied


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in a different light to many other countries. The region is also more open to the concept, as the Central Bank of West African States (BCEAO), which serves the countries using the CFA franc, has already drawn up its own e-currency regulations. Secondly, the concept of technological leapfrogging has become more common in recent years, with proponents arguing that the continent could catch up in developmental terms by bypassing stages of technological development in favour of the latest advances. Dakar and Tunis are therefore open to the idea of alternative, parallel currencies, daring to take the lead on launching them. The experiment could fail but could also prove revolutionary in a region where most people still lack formal bank accounts. This factor could make the currency more acceptable to potential users than in other parts of the world, as more people use airtime than have traditional bank accounts. The BCEAO will be responsible for the currency’sdistribution in the rest of the region in Phase 2. It is to be distributed in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Togo. Alioune Camara, the chief executive of BRM,

natural gas (LNG) plant and provide as much gas as onshore power, fertiliser and cement plants could consume. BP has bought a stake in Kosmos’ Senegalese blocks and so the required investment should now be forthcoming. In addition, Scottish oil company Cairn has already discovered offshore oil reserves. However, the government must be careful not to replicate Ghana’s recent development. The Ghanaian economy was already growing strongly when hydrocarbons were discovered, apparently putting the icing on what was an already attractive cake. However, Accra seemed to get ahead of itself in terms of increasing spending too quickly, fuelling both inflation and debt. On 13th April, credit ratings agency Moody’s lifted Senegal’s long-term issuer and senior unsecured debt rating from B1 to Ba and changed the outlook to stable from positive.

World’s second national e-currency

It is against this backdrop that Senegal has followed in the footsteps of Tunisia by launching a new national digital currency. Based on blockchain, the same technology behind bitcoin, the crypto currency has been given the stopgap name eCFA. The new currency will be compatible with other digital cash systems in Africa. It has been developed by a Senegalese bank, Banque Régionale de Marchés (BRM), and eCurrency Mint. In a statement, the two partners said: “The eCFA is a high-security digital instrument that can be held in all mobile money and e-money wallets. It will secure universal liquidity, enable interoperability, and provide transparency to the entire digital ecosystem in WAEMU.” In terms of security, the developers say that the currency will be secured by cryptographic protocols to ensure that it cannot be counterfeited. Proponents also argue that such currencies are more transparent and easily regulated by central banks. To some extent, the eCFA is not as revolutionary as some would believe because of its dependence on the central banking system. The electronic money provided by BRM can only be issued by an authorised financial institution. Other governments and central banks are contemplating launching their own digital currencies. For instance, the People’s Bank of China plans to issue its own currency based on blockchain.

Why Senegal?

There appear to be two main reasons why Senegal was open to the idea. Firstly, the country is already in an unusual position with regards to its currency. Its CFA franc is shared by 14 countries in West and Central Africa, with its value guaranteed by the French government. It is therefore used to seeing its currency

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Right: Finance Minister Amadou Ba expects a 30% increase in the size of the economy.

The government has slowly reduced its fiscal deficit from 5.5% in 2013 to 4.2% in 2016 and is on track to reach 3% by 2019, which is the medium-term target for the WAEMU. said: “We are committed to bringing digital financial services and true financial inclusion to West Africa. We can now facilitate full interoperability between all e-money payment systems. This is a great leap forward for Africa.” These are exciting times for Senegalese banking in general. Despite the rise of alternative currencies and methods of accessing bank services, the number of physical bank branches has increased rapidly, from 448 at the start of 2014 to 557 at the start of 2016. There are currently 20 banks in the country, including Banque de l’Habitat du Senegal, Islamic Bank of Senegal and Banque Atlantique.

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Ivorian banking optimistic despite challenges

Right: Casablanca, the financial heart of Morocco.

The downturn in cocoa prices is bad news for a country highly reliant on its revenues, but the long-term picture for the banking sector and the economy as a whole looks positive.


ôte d’Ivoire is proving to be one of the most attractive markets for banking sector investment in Africa. Despite recent problems in the cocoa sector and with civil and military unrest, the country is recovering the strong economic position it held prior to its long years of civil war and instability. Established banks are growing quickly, while banks from bigger banking markets elsewhere in Africa are buying existing companies or obtaining their own banking licences. Before the turn of the millennium, Côte d’Ivoire was by far the preeminent economy in Francophone Africa, with GDP substantially higher than that of neighbouring Ghana. After more than a decade of unrest, it is now growing strongly again. The government had forecast growth of 9.8% for last year and still achieved 8% despite a bad year for the cocoa

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sector, which was hit by low prices and drought. The price of cocoa futures fell by 41% in 2016 but the drought is also expected to affect this year’s cocoa exports. The crop generates about 20% of the country’s export revenues but is even more important in terms of providing employment and spreading economic development around the country. Several banks have warned that they will cut lending to the cocoa sector this year. A spokesperson for Société Ivoirienne de Banque (SIB) said: “The 2017 fiscal year began with a sharp drop in cocoa prices and social unrest which will have an undeniable impact on Ivory Coast’s state investments. In this context, SIB’s financing activities will continue with a greater focus on less sensitive sectors and a continuation of the risk policy it has led for several years.” However, some banks have continued to support


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the sector during the downturn. In October, British Arab Commercial Bank (BACB) agreed a $27m preexport finance facility deal with cocoa exporter Société Amer et Frères (SAF). The money is being used by SAF to buy cocoa this year and into 2018.

This is an interesting financial arrangement but also seems designed to calm tensions within the army. Attijariwafa said that the lending would “improve working and living conditions” for soldiers. Last July, South Africa’s Standard Bank was awarded a banking license to operate in Côte d’Ivoire, making it the 20th country in which it operates although it has sold off some of its non-African operations. A spokesperson for Standard Bank said: “We have refocused the bank on Africa, and definitely one part of the puzzle was missing, which is Francophone Africa. Right now we think is a good time to transform the rep office into a full branch of the group.” Standard plans to use its Ivorian business as a launch pad for expansion into the rest of the CFA zone.

Government cuts

President Alassane Ouattara announced in early April that the government would cut expenditure by 10% this year to compensate for lower cocoa revenue. In addition, the World Bank announced on 22nd April that it would give the government between $100m and $125m in budget support to cope with the cocoa crisis. It said that the exact size of the support will depend on “the strength of the reforms”. Without the problems in the cocoa sector, the government believes that consistent double digit growth is possible. Although the government has pledged to cut spending, it has increased wages for many state employees this year following a period of civil unrest,

Banking sector growth

Senegal uses the CFA franc as its currency.

including strikes by civil servants and an army mutiny. Aside from concerns over pay and conditions, the army is still trying to integrate former rebel fighters into its structures as there are still divisions between different factions. Despite the current sharp downturn in cocoa revenue, the long-term picture for the banking sector and the economy as a whole looks positive. The IMF forecasts a 118% rise in GDP between 2011 and 2021. Ivorian banks and the wider economy are supported by the strong currency, which in turn keeps inflation low. The banking sector has benefited from high levels of investment by Moroccan banks. SIB, which is mainly owned by Morocco’s Attijariwafa Bank, generated a net profit of CFA17.09bn ($28.17m) in 2016, up 15% on the previous year. Similarly, net income rose by 16% to CFA50.73bn ($82.54m). It aims to increase both figures by 10% this year. In February, Attijariwafa signed a deal to finance spending by Côte d’Ivoire’s Ministry of Defence, including for accommodation, although no financial details of the transaction were revealed.

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According to Côte d’Ivoire’s Professional Association of Banks and Financial Institutions, the value of the country’s banking assets increased by 11% in 2016 to CFA7,684bn ($12.66bn). This follows a 25% rise in 2015. The organisation forecasts an even more rapid rise this year, to CFA9,111bn ($15.02bn) by the end of this October on the back of strong economic growth. Established banks look set to face competition from mobile banking services. Côte d’Ivoire already has one of the most developed mobile money systems in West Africa. For instance, school fees must now be paid by mobile money. Kenya’s Commercial Bank of Africa (CBA) and South Africa’s MTN plan to launch its mobile banking service M-Shwari in Côte d’Ivoire by the end of this year. The service will compete with established Ivorian mobile money services Orange and Moov. Chris Pasha, the CBA’s head of marketing, said: “Our feasibility studies conducted on Côte d’Ivoire show that it is a very promising market. The bank’s strategic plan is that M-Shwari should be available in 10 counties by 2020.” This is the first time that a Kenyan mobile banking company has launched a service in West Africa. The company has 16m customers in Kenya and is expanding quickly into other markets in Eastern Africa. On the back of M-Shwari, which unusually it gives different names in different countries, CBA recorded a 52.7% rise in net profits for the first three quarters of last year. There are 26 banks in the country but there is still room for much greater banking sector penetration. Private sector lending stood at 23% of GDP at the end of 2015, far lower than in similarly sized economies elsewhere in Africa. Development has been heavily concentrated in Abidjan, so the opportunities for retail and corporate banking also centre mainly on the city. n

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G T B ank’s Se g un Ag baje Segun Agbaje took over as CEO of GTBank from the late Tayo Aderinokun in June 2011. Like his predecessor, Agbaje tends to avoid the limelight, preferring to work away quietly but relentlessly. An elegant figure with a polished appearance and a British public-school accent, he tells Omar Ben Yedder the secrets behind the bank’s strong results, how it has managed to overcome thedownturn, and why youth and women are at the centre of its success.

DON’T CUT COSTS, CUT WASTE Although GTB is always up there with the big boys in our annual Top Banks in Africa rankings, what is most surprising is that with only half the assets of your major competitors, you seem to be able to post higher profits. So, it’s a simple question, how are you making such numbers? Even though there’s a recession in Nigeria, there’s still very vibrant retail business and, as far as the Nigerian banking sector goes, we’re nowhere near saturation. With a population of 170 to 180m we have under 30m unique bank accounts. Our balance sheet is smaller than those of comparable banks because we’re not playing a game of size, we’re playing a game of efficiency and profit. One of the easiest things to grow in banking is your balance sheet; we are more concerned with our net interest margin (NIM). We go for low cost deposits and we deploy them in low risk assets. If you look at last year’s results, you would see that we had a NIM of 9% because our bond

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cost is 2.8% and our total yield in assets was 12%. Our balance sheet position is long dollars – some $900m – so whenever there’s a devaluation we make money because we have a revaluation gain on that position. But we choose to be conservative – because 2016 was a very difficult year – so we only put on our profit and loss reckoning 50% of our revaluation gains and we put the other 50% in collective impairments. We released our first quarter results today and I can tell you – without any revaluation gains, first quarter 2017 profit before tax for GTB is N50.2bn ($160m). Many banks were exposed to the oil and gas sector and to some extent to the energy sector and dollar denominated debt. Has that been a problem for you? Everybody has different issues; we also have a lot of oil and gas exposure, mainly upstream. But it depends where you put your money. If you are directing the acquisition of


the asset and you have primary cash flows, all you have to do is turn it up a bit. The average oil price last year was $44; we’re up at about $53 average for this year, so things are a lot better for those assets than they were. You hear complaints that banks are not lending to sectors such as agriculture or the small and medium-sized enterprises (SMEs) and instead are putting a lot of their money in Treasury Bills. Is that a fair comment? I might shock you with my answer. I feel that is rational behaviour. In any environment the risk-free rate of return is the Treasury Bill rate, and if you’re in a position where your Treasury Bill yields are as high as 22%, it only makes sense to put money there. You will not have non-performing loans to deal with in the future and you don’t have to provide any capital against loans. So to be fair to the banks who do it, including us, it is rational behaviour. Where

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you can make good yield on a risk-free investment that requires no additional capital then why waste a lot of time going into risky areas? I think it’s more the government who should temper the yields of fixed income so that people are encouraged to lend to other sectors. However, your loans to the agriculture sector between 2011 and 2016 increased by around 70%. So, can you lend to the riskier sectors and still make money? It’s not as if we don’t lend. I have a loanto-deposit ratio of 70% which means I must be lending, I have a loan book of about N1.5 trillion ($4.8bn), so I am lending. I’m just saying that while you have a loan book of N1.5 trillion you also have a fixed income book of N500bn because it makes sense, it’s profitable. As a bank you have shareholders’ and depositors’ funds and you’ve got to be careful with them because you are accountable for them. You can’t treat your money the way development banks treat it nor can you take a risk that you are not comfortable with because the government wants to develop a certain sector. But if it’s a sector that is adequately de-risked. then yes, you will participate. What is your view about the Treasury Single Account (TSA), whereby government accounts were moved to the Central Bank, causing a liquidity crisis? I think it’s a good policy. A lot of banks had started to rely on government deposits but you can’t build a bank, and you shouldn’t build a bank with government deposits – they’re very volatile. Also those monies should be spent rather than kept in banks. So the liquidity of banks that were only reliant on government deposits has been affected but hopefully it will encourage them to build a proper business. It’s never been Guaranty Trust Bank’s strategy to hold too much in government deposits because of the volatility. We paid back all the TSA and hopefully, as you can see, we’re still very comfortable. Government should bank at the Central Bank and make sure

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I N C O N V E RSAT I O N that the banks build a proper private sector sustainable business. This meant that you weren’t too dependent on TSA? No, we weren’t dependent on TSA. For us, historically, government deposits were always under 5% because we always knew that they were volatile deposits. What we have always done is to have retail deposit base of about 48%, an SME deposit base of about 10%, a corporate deposit base about 25% and we have what you call middle market about 14%. Are you comfortable with the current market conditions in terms of FX or would you like to see the currency floating? I’ll answer your question in two parts. I think if you look at first quarter 2017 it’s been a lot better than 2016. I would say we basically have three rates today: N305 which is the CBN rate, N325 which is NIFEX and this new NAFEX which is about N372. I believe that we need to have one single rate, we need to go through price discovery and at some point we are going to have to merge the exchange rates and f loat them. I believe that absolutely. Would you like to see it done over the next three months, six months? To be honest I’d like to see it done as quickly as possible, you’ve got to have one rate and then within reason, let market forces control and determine what that rate is. I think it will happen quite soon. What’s your vision in terms of your international expansion? Today our businesses outside of Nigeria account for 15% of our deposits, 11% of our loans and about 8.2% of our profit. Over the next probably three years I’d like to see their contribution grow to about 20%. We would also hopefully, by the end of the year, have opened in Tanzania and then hopefully we’ll have gone to one country in southern Africa. I also hope that the existing

subsidiaries will start to make a lot more money so their contribution to the group will be about 20%. The strategy seems similar to your Nigerian strategy of being smart, ef ficient and very focused on profitability? That is the only way we know how to do business. Our belief has always been that if you take your cost to income ratio, take your asset profitability ratios, take your ROA ratio, take your ROE ratio and then, if you find yourself in the top three in any market in those things, you will have enough scale without even thinking about size. Your cost to income ratio is around the 40% mark while that of some of your competitors are around the 55–60% mark. Yes, I’m at about 40.8% for the group and that’s because we have new subsidiaries. GTBank in Nigeria has 35% cost to income right now, but because we know that we’ll continue to grow into new franchises, we’re happy at 40%. Forty percent is really kind of where we’re comfortable, but for us cost is the source of competitive advantage that we take very seriously. But we say here that we don’t cut costs, we cut waste. The average age at the bank is 44 and 31% of women are in senior positions. Is that by design? I think people track this a lot more than I do; they look for gender balance and equality. Women are really big on it but I always joke with them why they are so concerned about this as I happen to think that women are actually superior to men – you can’t be inferior to that which you have given life. What we try to do is create equal opportunity. We do not look at the genders of people in making promotions or hiring people. I have found throughout in my career that I have worked with and have complete confidence in a lot of women without consciously doing

Right: Segun Agbaje speaking at a recent conference in Lagos.

it. This is a performance-driven environment; women do well because we are looking at performance and not gender. But even the average age is quite young, which means that you are willing to give opportunities...? Absolutely. It probably would be younger than that and maybe a few people are tilting it. I would describe it as a triangle with a very broad base: about 70% of our workforce are in the school-leavers to about five years out of university category – so it’s going to be very young. The success of FinTech suggests that banking is next to be disrupted and turned upside down. Does that worry you? I’m actually one of those bankers who has decided that I’m not scared of disruptors. I would describe GTB as a platform for enriching lives – and that we are turning from a bank into a platform, which means that we are working hard on partnerships and collaborations. We are basically going into the same area the disruptors are heading for. We have a market hub and a TV station called Ndani. We have an in-house FinTech team which develops stuff for us, so rather than being nervous and shy about disruptors or disruptive technology we are embracing it and we have changed our organisational

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We will probably pay off the 2018 one as well. I think the yield now is around 3%. We will not be going to the market again this year because we don’t see a lot of dollar lending opportunities right now in this environment. Today when I scope the landscape, I think you need to do more naira projects. I don’t see too many dollar-based projects in the future, but having said that, if between now and the maturity, which is likely to be May 2018 or October 2018, the landscape changes then yes we might choose to do another transaction. structure to be able to deal with the digital age. We have what I would call a two-tier organisational structure today. We have one that takes us to the traditional business and ensures we will not lose market share and we have another one that we have created which focuses around digital banking, data analytics, FinTech. How recent is this development? We have always had smart people working with us. We started our FinTech this year but we’ve had a market hub for three years, we’ve had an online TV station for about five years, we’ve had very robust payment systems for almost two years (of which one is US dollar banking). Our FinTech is three months old, but the word ‘FinTech’ just stands for people creating financial solutions through technology, which we’ve always done through our IT in one form or another. It’s just that now we’ve formalised it by creating a separate arm of the bank. So technology has always driven us and we have never really shied away or worried about disruptive technologies in terms of how other people see it. Yes, it is a threat but we also believe that we are good enough to compete in that space. During the banking consolidation time in Nigeria, the argument was

If we retain about 40% to 50% of profit every year, then we will always be in the 20% to 21% capital adequacy range.

that you needed big banks to drive big transactions such as infrastructure project financing. Is this still the case for you? Yes, given the size of the banks, they are in a position to do bigger and bigger transactions along the one-obligor concept. That part of our business, which we call our institutional bank, actually is still 70% of our loan book and it’s about 74% of our profit. Today in terms of one-obligor – what we can give to one single entity is now close to $400m at the current exchange rate. I remember that you were one of the first banks to issue a Eurobond… That was in 2007. We had two mature; we have one running now which is $400m 2018 maturity and we had a maturity of $500m last year; anyway, we paid it off I think in the summer.

Are you comfortable with your capital base? Our capital adequacy is about 20%. After we’ve paid dividends we normally come down to about 18%. As long as we remain profitable, if we retain about 40% to 50% of profit every year, then we will always be in the 20% to 21% capital adequacy range. Then we will be able to operate without raising new capital – unless we have a major, major initiative that we want to do in terms of expansion. If not, I think we can always internally generate the capital to grow business. Listening to you it’s a rosy world out there – there are big opportunities and there’s business to be done. You seem quite upbeat. It is a rosy world out there. If you look at 2015, our ROE was 28%. I always say to people I don’t know many businesses or many parts of the world where, over a five-year period, you can make a 28% ROE. I’m talking about Africa in general, where as a group you can achieve a ROE of around 20% and in some countries, this goes up to 49%. In a country like Nigeria where we get 92% of our profit, we’re hitting 28% ROE. I wouldn’t use the word rosy, it’s a challenging environment but the rewards compensate for the challenges and risk. n

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T H O U G H T L E A D E RS H I P Contrary to received wisdom that investing in African infrastructure is both risky and not very profitable, Oliver Andrews* argues that the opposite is the case. Properly structured, investment in African infrastructure not only generates healthy financial returns, but also ushers in a multitude of economic benefits for the people of Africa.

Why investing in African infrastructure pays


hroughout history, we see a direct correlation between the wealth, power and development of nations and the state of their infrastructure. Infrastructure, however you define it and whatever form it takes – whether it is the systematic exploitation of natural resources, or transport networks, or the harnessing of energy – is the great enabler. Without adequate infrastructure, very little progress has ever been made. We are all aware that Africa was bequeathed with the mere skeleton of an infrastructure framework at the end of the colonial period and that in most cases, this has become not only obsolete but totally inadequate to meet the urgent needs of Africa’s rapidly expanding populations and their development aspirations. We refer to this as the continent’s infrastructure gap – which has been estimated at around $90bn per annum. So, while finding ways and means to closing this gap has exercised deep thought and concern among most governments and development agencies, actually being able to do so has been akin to the quest for the Holy Grail. This is not surprising. Modern infrastructure projects are very complex and very expensive. They require coordination and collaboration from diverse disciplines and stakeholders and the pay-off, often in intangible terms, is always long term. Further, success is perceived to hinge on being able to source sustainable and

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patient capital – the make or break factor. Indeed finance, or the lack of it, has often been cited as the arch villain standing in the way of infrastructure development on the continent. However, as I hope to show in this piece, that is not the case. Private finance, world-wide, follows its own rules and imperatives – the chief of which is to turn a profit at the end of a venture. In doing so, private finance adds significant value to developing sound and impactful infrastructure projects that can drive Africa’s much needed socio-economic development. Over the last 10 years, we at the Africa Finance Corporation (AFC) have proven the private finance value add, and that African infrastructure projects are not only safe investments, but can be very profitable. In the 2016 financial year, the AFC reported a 51% year-on-year surge in net profits, reaching $109.4m. This strong growth occurred despite the challenging economic environment in Africa. Unsurprisingly, some have lauded the achievement as AFC ‘finding ice in the Sahara desert’. The question of course is how an institution like the AFC, home-grown in Africa and using largely domestic resources, has been able to increase its investments in the continent by about $800m year-on-year when much of the continent is experiencing a slowdown due to low commodity prices and slow global growth?


More can be done to attract international capital to interesting opportunities in African infrastructure. African institutions need to lead the way. – Oliver Andrews

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The key to our success over the past years has been based on two principal aspects: One has been to take full advantage of our provenance. As an organisation originating from, rooted in and nurtured by Africa, I think I can say with justification, that we understand the continent perhaps better than most of our peers. At the AFC, we understand both the nature of the risks and rewards involved as well as the most effective ways of mitigating the risks while maximising the rewards. Second, as major international investors with a galaxy of global expertise available to us both within the corporation and on tap, we also fully understand the concerns and requirements of investors and their shareholders – such as strong governance structures, rigorous due diligence and attention to detail that are essential prerequisites before any realistic engagement can be entered into. The combination of these two factors, added to our ability to design flexible investment vehicles that incorporate and absorb the special challenges that many African countries throw up has allowed us to stand the difficulties associated with financing Africa’s infrastructure on its head. As a result, we have received the trust and backing of strong international institutions allowing us to roll out a wide diversity of often innovative investment vehicles especially suitable for African conditions.

construction energy generation capacity of over 1,575MW, supplying power to over 30m people across five countries was merged. The venture brought together $3.3bn capital value portfolio of assets, including the landmark Kpone Independent Power Project in Ghana and the Lake Turkana Wind Power farm in Kenya. The new company will have its own balance sheet and attract financing faster and on a wider scale, thus revolutionising the approach of financing on a project by project basis which can take up to three years to close. This is critical for a continent with over 645m million unelectrified population and an energy infrastructure gap of $55bn. Several complex matters around lender and shareholder approval, tax, regulatory oversight, political risk insurance, corporate governance, environmental and social impact, and operations management had to be carefully negotiated and structured around in order to achieve outcomes satisfactory to multiple stakeholders. Another example of a different nature is our involvement in the $205m development of a high-grade bauxite mine in Guinea. This is the first international investment into the country since the outbreak of the Ebola crisis. It is not just the typical sort of extractive mine investment that you see all over Africa. The Bel Air bauxite mine in the northwest region of the country also features a refinery to produce alumina, the raw material required to produce aluminium. This refinery process provides added value because it creates more jobs for Africans and helps strengthen the West African nation’s economy in the face of commodity price crashes.

Unique partnerships

Risk mitigation

I will examine home-grown innovation, leveraging on unique partnerships, risk mitigation and local stakeholder capacity building, as some of the many tools AFC has employed.

Home-grown innovation

Perhaps the best example of this innovation and value from leveraging on partnerships is our joint venture with Harith General Partners. It involves aggregating multiple assets in one investment vehicle in order to generate scale required to fast track power sector investments across the continent. A combined operational and under-

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An example of our ability to mitigate risks based on our deep knowledge of the African economic environment is our approach to handling exchange rate risk following the fall in a number of African currencies against the dollar. AFC, which is a dollar balance sheet organisation, is of course not immune to this problem. One solution we have implemented

is pegging the local currency to the US dollar. This type of contract allows a great deal of flexibility for both the investor and sponsor, because if the exchange rate moves either in a positive or negative direction, then the next bill will be adjusted to reflect a corresponding gain or loss for the sponsor, depending on how the currency has moved. With this type of instrument, both the investor and sponsor can hedge any currency movements. We at the AFC feel that African and international institutions need to lead the way and share their experience with other investors and developers. This is critical to developing the local capacity required to fast track infrastructure development. This is one reason why we launched the Africa Infrastructure Development Association (AfIDA), which brings together project developers, investors, public sector officials and advocates who have in-depth experience of developing projects in Africa. This platform will foster continuous dialogue among members, standardise project development documents, develop market norms, conduct independent research and serve as a policy advocacy forum for the industry with a view to ensuring more projects on the continent achieve bankability. Far from there being a shortage of funding for Africa’s infrastructure or the perceived inability/unwillingness of private finance to take on African infrastructure finance risk, there is actually a wall of liquidity both within and outside Africa willing and wanting to invest. What is required is to bring together people who understand and know how to deal with the unique challenges in Africa and international investors, and are willing to be innovative, flexible and partner for success. Associations like the AfIDA are a great help in this regard but the most persuasive argument is proof that investing in African infrastructure pays. The AFC, I am proud to say, is a living example of that proof. n *Oliver Andrews is the chief investment officer at Africa Finance Corporation (AFC).

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Islamic finance, with total global assets under management of over $2.6 trillion is becoming a major factor in the financial landscape of many emerging markets, including in Africa. Given its growing importance, the IMF is now taking steps to ensure the industry is properly regulated. Report by Mushtak Parker.

IMF to step up oversight role


enya and Morocco are setting the pace in the proliferation of Islamic finance in Africa with the licensing of six new Islamic banks. This is the latest in the steadily increasing presence of Islamic finance in several African countries. While the overall financial industry on the continent is warming to this devel-

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opment, regulatory issues remain something of a grey area. Now, the International Monetary Fund (IMF) has indicated that it will step up its oversight functions in the industry.

Licences issued in Morocco

On 5th March, Bank Al-Maghrib, the central bank of Morocco, confirmed that it had issued five new licences to


establish Islamic banks, which are referred to as ‘participatory’ banks under Moroccan legislation. The licences are for joint venture Islamic banks involving foreign partners mainly from the Gulf Cooperation Council (GCC) states. They include licences to CIH Bank in partnership with Qatar International Islamic Bank; to BMCE Bank

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Left: a branch of Attijariwafa Bank, one of the banks licensed to open Islamic subsidiaries in Morocco.

of Africa jointly with the Dallah Al Baraka of Saudi Arabia; to Banque Centrale Populaire with the Saudi Office of Guidance Capital; to Crédit Agricole du Maroc jointly with the Islamic Corporation for the Development of the Private Sector (ICD) – the private sector funding arm of the Islamic Development Bank (IDB); and Attijariwafa Bank, which is still in discussion with a potential foreign equity partner. In addition, the Credit Institutions Committee also gave approval to Banque Marocaine du Commerce et de l’Industrie, Crédit du Maroc and Société Générale to sell Islamic banking products through specialised windows. The launching of participative finance products in Morocco, added the central bank, “complements and expands the range of products offered by the domestic banking sector and opens it to new financing capacities. More particularly, it will strengthen the attractiveness of Casablanca as a leading financial hub in Africa.” Morocco, according to a Malaysian Islamic Finance consultancy, which is advising the Moroccan government, is in the process of finalising a regulatory framework for the issuance of sukuk in the Moroccan financial markets. This would pave the way for the Kingdom’s proposed debut sovereign sukuk in 2017, which would serve as a benchmark for other sukuk issuances in the Moroccan market. Sukuk (singular – sakk) are Islamic bonds, structured in such a way as to generate returns to investors without infringing sharia (Islamic law), which prohibits riba or interest. Sukuk represent undivided shares in the ownership of tangible assets relating to particular projects or special investment activity.

Expansion in Kenya

On 14th March, the Central Bank of

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Kenya (CBK) announced its intention to finalise the processing of a banking licence for DIB Bank Kenya, a subsidiary of Dubai Islamic Bank (DIB). This is the oldest commercial Islamic bank in the world, established in 1975, and in which the Investment Corporation of Dubai (ICD), the Dubai government’s main investment vehicle, has a 28.33% equity stake. DIB has targeted Nairobi as its entry point into Africa. From this hub, it expects to expand its Islamic financing and investment footprint in Sub-Saharan Africa. The choice of Nairobi was decided by the Kenyan Government’s stated proactive public policy on Islamic finance in general and its support for the required financial architecture. In 2008, the government of Kenya, then under the leadership of Mwai Kibaki, launched Vision 2030 that aims to transform the country from a low to a middle-income economy by that date. Part of the strategy involves much greater financial inclusion and deepening of the financial sector. It also envisages Kenya as the leading financial hub in East Africa. To achieve this, the government is establishing the Nairobi International Finance Centre; the proposed International Islamic Finance Hub will form an important component of this and will provide a bridge between the East African region and Islamic finance players from around the world. In his Budget Statement to the National Assembly on 30th March 2017, Henry Rotich, Cabinet Secretary for the National Treasury, confirmed that the Nairobi International Financial Centre Bill had been submitted to parliament for approval. “Islamic financing is becoming a major source of funding development worldwide, is getting integrated within the global financial system and has the potential to boost prosperity and raise the standard of living of our people. Kenya intends to maximise its comparative advantage and position itself as a regional hub for Islamic finance products in order to attract

foreign direct investment,” he said. He confirmed plans to amend the Capital Markets Act, the Cooperatives Societies Act and Sacco Societies Act to facilitate sharia-compliant finance products. In addition, Rotich added that he also plans “to amend the Public Finance Management Act to provide for issuance of sukuk as an alternative source of financing our development projects. I also intend to amend the tax statutes to provide for equivalent tax treatment of these new financial products with the conventional financial products.” All this is music to the ears of Mohammed Al Shaibani, CEO of ICD and Chairman of DIB, who in a subsequent statement explained:

With total assets under management of over $2.6 trillion and an expanding footprint in emerging markets in Africa and elsewhere, the IMF is stepping up its involvement in the industry. “The bank’s international expansion strategy is progressed very well with the official launch of our operations in Indonesia and the recent positive developments with the regulators for our Eastern Africa ambitions.” Currently Kenya has two Islamic banks – First Community Bank, which is largely locally owned, and Gulf African Bank, in which Bank Muscat of Oman has a major stake.

Regulation and supervision

With total assets under management of over $2.6 trillion and an expanding footprint in emerging markets in Africa and elsewhere, the IMF is stepping up its involvement in the industry. The industry has seen prolific growth over the last three decades in size, complexity of products and services and in demographic reach. In a recent report, Ensuring Financial Stability in Countries with Is-

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IS L A M I C FI N A N C E Indeed, “the number and complexity of Islamic banking issues arising during IMF country surveillance, and the demand for policy advice and capacity development in this area have increased, requiring a more formal IMF involvement,” stressed the directors.

Concerns over hybrid products

lamic Banking, the Fund has come up with specific proposals to increase its surveillance and technical advisory role in the global Islamic finance industry aimed at promoting its orderly development, financial stability and regulatory soundness. According to a senior IMF official, who wishes to remain anonymous, the Executive Board of Directors of the Fund formally discussed Islamic finance for the first time at this level at a meeting in Washington DC in February 2017. The reasons for the heightened interest is simple: IMF directors agree that Islamic banking is now becoming an important part of financial systems in at least 15 to 20 economies and this figure is set to increase. Islamic banking, says the Fund, is now offered on all the continents in more than 60 countries. Islamic finance also presents an opportunity for IMF member states to enhance financial intermediation and inclusion and mobilise funding for economic and infrastructure development. At the same time, they noted that the growth of Islamic banking, its specific characteristics and complexities pose new challenges and unique risks for regulatory and supervisory authorities. Despite the fact that “significant progress has been achieved in developing prudential standards for Islamic banking” the current frame-

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The global sukuk market is now in excess of $200bn, and the potential is huge


work governing the global industry, says the Fund, “contains many gaps that need to be closed.” According to my IMF source, the directors are keen to ensure that Islamic finance jurisdictions have a strong policy framework that promote financial stability and sound development of the industry, particularly in countries in which Islamic banking has become systemically important, i.e. where it accounts for 15% or more of the total banking sector assets. A game-changing development is the imminent inclusion of financial supervisory standards prepared by the Islamic Financial Services Board in the IMF’s own country surveillance programmes. This means that the IMF would, for the first time, be able to independently assess the regulation and supervision of Islamic banks and products in any market where they are offered.


An area of concern to the IMF, said the official, is the emergence in recent years of hybrid financial products in Islamic banking, where conventional financial products are replicated and ‘Islamised’. While these may bring some benefits, they also raise financial stability and sharia-acceptability issues – including the emergence of new complex risks, the applicability of existing prudential regimes, governance and consumer protection concerns and reputational risk. The suggestion here is that the Fund would like sharia advisories to take up this challenge and give greater clarity in respect of principles relating to hybrid products to pre-empt any dent in market confidence in such products. The IMF stresses that in some countries attention needs to be paid to developing legal regimes for resolution of insolvency, deposit insurance schemes and lender of last resort frameworks that are appropriate for Islamic banking. Not surprisingly, the directors called for increased efforts to deepen government sukuk issuance to boost high-quality liquid assets in the system. While the global sukuk market is now in excess of $200bn (which is small compared with the global bond market, although the potential is huge), the IMF official is keen for the market to effectively go back to basics. “There are too many sukuk using hybrid and exotic structures, which are complex and costly in terms of legal structures and documentation. We need to go back to issuing ‘vanilla’ sukuk, which are ideally linked to new infrastructure projects. In this way it would benefit the real economy of the countries,” the official stressed. n

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Fe l i x Bi k p o C h i e f Exec ut ive, Afr i c a n Guar antee Fund Stacked with skilful and ambitious entrepreneurs, small and medium-sized businesses across Africa are desperate to expand and create new jobs. Yet access to finance continues to be a major drag on their development. The African Guarantee Fund works with financial institutions across the continent to help extend much needed finance to the sector. Chief executive Felix Bikpo talks to David Thomas about the AGF’s strategy and its priorities over the next five years.

SMEs are the Coca-Cola and Nestlé of tomorrow How can the African Guarantee Fund (AGF) help SMEs overcome the challenges that hold them back? The main problem facing small and medium-sized enterprises (SMEs) remains their restricted access to finance. Through our guarantee facility, the AGF assists financial institutions in covering the risks associated with SME financing and enables them to increase their portfolio in that asset class. Through its capacity development facility, AGF assists financial institutions to enhance their SME financing capabilities and execute their growth strategies in that sector. These facilities together enable partner financial institutions to bring their SME financing business to the required scale that would not only enable them bring down transaction costs significantly, but also increase returns on investment. How has the SME sector in Africa improved since AGF began its activities? Before AGF, if you look at the volume of the financing from the financial sector to SMEs, it was very low. Today we are in almost 40 countries in Africa through almost 100 financial institutions and we notice that the percentage of loans to SMEs has sig-

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nificantly improved. It’s helped us to go from 3000 to 11,000 SMEs having access to financing on the continent. We want this number to increase year by year. It’s not just about a guarantee, its about giving the financial sector the comfort it needs. You can see success stories in Côte d’Ivoire, Nigeria, Kenya, Mozambique, Ghana, Togo and Mali. A lot of SMEs before could not expand their activity and they can today because of AGF. Are financial professionals now more optimistic about the concept of SME lending? If you take out the international banks, who are generally following their large corporate customers to the continent, we have African banks who have no choice but to finance SMEs – these are their Coca-Colas and Nestlés of tomorrow. SMEs are their natural customers. When you provide the financial institutions with solutions that can help them to secure the perceived risk of SMEs, they are very happy to follow you. They’ve changed their way of thinking and perception of SME risk. You recently integrated the Guarantee Fund for Private Investments in Africa (GARI) following a $35m


acquisition. What does this mean for the future of AGF in West Africa and beyond? The GARI fund acquisition was done in line with our strategy to expand on the continent. The GARI fund strengthens our portfolio in West Africa, and is part of our strategy of being closer to our customers. Our plan is to have similar acquisitions in other regions of Africa. We’re looking actively in Central Africa, North Africa and Southern Africa. All of these regions are growing. The strategy for us is pan-African. We are able to provide to GARI our know-how, technology and people, and new ways of bringing the guarantee business to the continent. The integration has been a success, and the process concluded in 15 months. The products are being streamlined and the strategy has been understood. The financial sector needs a good guarantee fund – when the AGF came in to reinforce GARI the financial institutions were happy to see an institution come in and provide them with the comfort they need for their business. The reaction was extremely good. How are you helping to boost SME

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lending in the green financing sector? Green business is a new business, a new product in the market. There are still low levels of knowledge around it. It’s important to explain to the financial sector the importance of the green business. It’s important to explain that if we get the right networks in place today and help our SMEs develop the best technology and incorporate it into the business, we are boosting the business of tomorrow. We need to explain what it means and how we get SMEs to adopt the technology. We have a strong capacity-building component that’s been funded by our shareholders to explain to our partners what green financing is and

Using green technology can be a good business. We want to boost financing and show others it can be done.

how we can assess the risk. Using green technology can be good business. We want to boost financing and show others it can be done. Another business sector where SME potential has gone unrealised is agriculture. What is your strategy to boost lending here? Africa is mainly agricultural, but agricultural transformation is still in the very early stages. When you see primary producers, it’s more informal than formal – they’re out of the financing network. What we are trying to do, and this is a pillar of the next five years, is to really help drive resources to them to transform agriculture locally. At the moment, transformation is largely done by big corporate companies. That’s good, but why don’t we help these companies to use the local SMEs and drive transformation. Cargill cannot do what an SME can do because of the structural costs. Let’s go that way, let’s help the SMEs, who can in turn help Cargill. Agriculture is our number one priority this year. How can you help to improve the infrastructure picture for SMEs? That’s another priority for our fiveyear plan, alongside agriculture and energy. When people look at infrastructure they generally think of big companies. These big companies will not be able to operate without good suppliers on the ground, without outsourcing to SMEs on the ground. Generally big companies outsource part of the job to the SME but they cannot execute because of financing. What we need to do is, if there’s a road from Nigeria to Côte d’Ivoire, we need to look at locally what the skills are, how they can outsource the job locally and build the SMEs and financing. Then the know-how can stay in the continent and the added value and job creation is immediate. This is what we are trying to work on across all AGF activities – we help to ensure financing and make sure local SMEs are ready to follow. n

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South Africa: Ripples from Night of the Long Knives The reverberations from South Africa’s ‘Night of the Long Knives’, when President Jacob Zuma, having peremptorily

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summoned his former, highly respected Finance Minister and his deputy back from a roadshow in the UK a few days earlier


and, then proceeded to move several Ministers and Deputy Ministers from his Cabinet, continue to rock the country both

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politically as well as economically. Although S Africa’s economic growth has stalled over the past few years, it remains the second biggest in terms of GDP in Africa and has reputedly the soundest banking and finance sector in emerging markets worldwide. The Finance Ministry under Pravin Gordhan was described

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as the ‘fortress’ able to withstand economic shocks and find ways to strategise out of crisis. It was also seem as the least tainted by political or other considerations and to steadfastly work in the interests of the nation rather than political parties or economic interests. S Africa is still seen as a benchmark for other African and indeed

emerging nations to follow, particularly in the regulation of its finances in the teeth of economic turmoil. International investors (including from other African countries) take the continent’s pulse from S Africa so the ripple effect of a crisis of this magnitude affects Africa as a whole. If confidence in S Africa is undermined, confidence in the rest of Africa is also undermined.

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F E AT U R E : S O U T H A F RI CA N BA N K I N G At the end of March President Jacob Zuma sacked his well-respected Finance Minister, Pravin Gordhan. Mushtakq Parker examines the background to this move and the likely consequences for South Africa’s economy and banking system.

Is noise replacing reason? Where is South Africa headed after Gordhan’s dismissal?


ne of the first things that South Africa’s Minister of Finance designate Malusi Gigaba did following the announcement of his pending appointment, was to arrange a teleconference on 31st March 2017 with the top three international rating agencies – Standard & Poor’s (S&P), Moody’s and Fitch. According to the National Treasury, this was to give assurances about the future policy direction of the economy and the country’s finances, and the government’s commitment “to a measured fiscal consolidation that stabilises the rise in public debt”. The next day, April Fool’s Day, Gigaba became the fifth person to head the National Treasury since the African National Congress (ANC) came to power in 1994 following the first non-racial democratic elections after the collapse of Apartheid. Trevor Manuel, Pravin Gordhan and Nhlanhla Nene were three of his notable predecessors. The fourth, Des van Rooyen, who arrived at the National Treasury in December 2015, lasted merely a few days – an appointment

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that was as embarrassing as it was politically naïve. Two days earlier, on the evening of 30th March, President Jacob Zuma had wielded more of an axe when he sacked some 10 Cabinet Ministers and a spate of junior Ministers, prominent among whom were the internationally respected Finance Minister Gordhan and his deputy Mcebisi Jonas. Even Gigaba in his acceptance speech alluded to “the abrupt change in leadership of key government institutions” and said that he was “fully aware that we are at a highly politicised, polarised and contentious moment in the history of our young democracy.” A spate of ANC stalwarts reacted with dismay at the unceremonious removal of Gordhan including Deputy President Cyril Ramaphosa, widely regarded as a future successor to Zuma. Above: Pravin Gordhan, the recently dismissed South African Minister of Finance.


Reduced to junk status

Gigaba’s assurances to the ratings agencies, however, failed to do the trick. A few days later on 3rd and 7th April,

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S&P and Fitch downgraded S Africa’s long-term foreign currency sovereign credit rating to ‘BB+’ from ‘BBB-’ and the long-term local currency rating to ‘BBB-’ from ‘BBB’, the former with a Negative Outlook and the latter with a Stable Outlook respectively – effectively a sub-investment grade rating otherwise known by the financial market as ‘junk’ status. Moody’s too at the time of writing had given notice of an imminent similar downgrade in its ratings of S African foreign currency debt. The downgrade unanimously reflected the two rating agencies’ views “that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances. This is likely to result in a change in the direction of economic policy.” Fitch ratings further observed “that the reshuffle partly reflected efforts by the out-going finance minister to improve the governance of state-owned enterprises (SOEs). The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government’s balance sheet.” S&P went further warning that “in our view political risks will remain elevated this year, and that policy shifts are likely which could undermine fiscal and growth outcomes more than we currently project”. However, if fiscal and macroeconomic performance deteriorates substantially from its own projections, S&P would not hesitate considering lowering the ratings even further. On the flip side, if political risks are reduced and economic growth strengthens, the rating agency could revise the outlook to Stable.

Conspiracy theories

Whatever the motives behind Gordhan’s removal, and there are a spate of conspiracy theories circulating. These include Russian pressure linked to the nuclear power station deal for S Africa (to be built by Rosatom and linked to the politics of energy in Western Europe), to alleged influence by the controversial Indian Gupta family. The family has close links with the son and spouse of Zuma and some of their companies allegedly stand to gain in contracts related to the above deal, which Gordhan as Finance Minister was strongly opposed to. Gigaba, speaking to investors in Cape Town in April, reiterated in a speech “that any procurement of nuclear energy will follow due process as required by the Constitution and the PFMA (Public Finance Management Act of 1999), and will proceed only at a pace and scale that the country can afford”. However, in his portfolio acceptance speech, Gigaba reflected an oblique criticism of Gordhan’s approach, echoing the view of his President. “We need to radically transform the S African economy, such that it works for all South Africans, including those who have been and still continue to this day to be marginalised – the working people and the poor, black people in general, women and youth.”

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Who is Malusi Gigaba? “I don’t ask questions, I simply comply with the instructions given to me,” Knowledge Malusi Nkanyezi Gigaba told reporters shortly after his appointment as South Africa’s Finance Minister at the end of March. This may presage a different relationship to the stormy one between his predecessor, Pravin Gordhan, and President Jacob Zuma. “I hold a masters degree. I’m quite educated. I don’t think anyone should doubt my capacity to adapt and adjust to a new portfolio,” he added, in rebuttal of questions about his capacity to do the job. Born in Eshowe, KwaZulu-Natal, in 1971 Gigaba headed the Youth Wing of the African National Congress (ANC) and was first elected to the National Assembly in 1999.

“I hold a masters degree. I’m quite educated. I don’t think anyone should doubt my capacity to adapt and adjust to a new portfolio" Formerly a protégé of President Thabo Mbeki, he switched allegiance to Zuma after the former’s downfall in 2008. As Deputy Minister of Home Affairs he helped install a visa system ensuring easier legal migration between S Africa and Zimbabwe. Appointed Minister of Public Enterprises in 2010, he had been responsible for much of the government’s infrastructure programme over the last seven years. Gigaba has been accused of benefiting from his involvement with the Gupta brothers, the business family of Indian origin at the centre of allegations over their influence on President Zuma. While acknowledging that he has met the brothers, the Minister denies any wrongdoing. “Meeting someone does not mean they have an influence on your decision,” he told reporters.

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F E AT U R E : S O U T H A F RI CA A further setback is the resignation also of the capable National Treasury Director General, Lungisa Fuzile, which suggests a cleanout of the senior Gordhan regime. What is revealing is Gigaba’s contention that there needs not to be a contradiction between inclusive growth and radical economic transformation. “There can be no economic progress that leaves the majority of our people behind. For too long, there has been a narrative or perception around Treasury, that it belongs primarily and exclusively to ‘orthodox’ economists, big business, powerful interests and international investors. With respect, this is a people’s government. National Treasury is a key enabling institution for progressive change. Its professionalism must be nurtured in support of a policy orientation that reflects the urgent need for change,” he declared. The immediate narrative of political discourse in S Africa in the wake of Gordhan’s dismissal, at least in terms of the ruling ANC, seems to be a veering away from personal attacks to the politics of economic transformation and shortcomings of empowerment policies. All this played out against a background a ‘Motion of No Confidence’ in President Zuma in the national Assembly, which has been rescheduled for sometime in May. Speaking to African Banker, Trevor Manuel, Nelson Mandela’s first Finance Minister, said: “The issue is that we need to look beyond personalities to institutions and processes. As matters stand, the institutions that manage the macroeconomics, namely the National Treasury and the South African Reserve Bank (the central bank), are both sound. “This soundness transcends the personalities. To date, I have not heard any suggestion that Malusi Gigaba has put a foot wrong. So I don’t want to judge him since such judgement would have to be based on prejudice, rather than fact.” Manuel accepts that Ministers serve at the pleasure of the President but, the way in which Jacob Zuma set about his reshuffle, he feels, leaves much to be desired. “Whilst there is no perfect time or style to call a Minister back from a roadshow, but to have him wait for four days and then undertake a wholesale reshuffle, the overall purpose of which appears impossible to fathom? It is of course, the basis for the huge public protest and the upcoming ‘Motion of No Confidence’ debate” he said.

The issue is that we need to look beyond personalities to institutions and processes. As matters stand, the institutions that manage the macroeconomics, namely the National Treasury and the South African Reserve Bank (the central bank), are both sound.

Restoring investor certainty

So what should be the short-to-medium-term priorities for Gigaba other than the shift in political emphasis, both in terms of maintaining stability in public debt borrowing and also the financial system? Analysts such as Frans Cronje, CEO of the South African Institute of Race Relations (IRR), a think-tank that promotes political and economic freedom, maintains that “restoring some measure of foreign and domestic

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Above: Trevor Manuel, South African Minister of Finance from from 1996 to 2009.


investor certainty that fiscal discipline will be maintained, and that no significant policy shifts are on the horizon, is vital.” This, he contends, will be very difficult to achieve. “At all costs, we must avoid a series of rating downgrades to the foreign denominated debt and later downgrades to the rand denominated debt,” he added. In fact, the economic and financial implications of the ratings downgrade will only start to work itself through the S African economy over the next few months because of the natural lag in its impact. An immediate consequence is that it will be more expensive for the S African government and its agencies (and for that matter corporates and consumers) to borrow money from the international and domestic markets because of perceived increased political risks. “The cost of capital and borrowing,” according to Cronje, “will increase resulting in decline in fixed investment and therefore lower growth levels and therefore lower tax revenues placing upward pressure on the budget deficit as S Africa’s debt to GDP ratio rises. It is a potentially dangerous self-reinforcing negative cycle where poor economic performance triggers new downgrades, which in turn trigger worse performance.” More importantly, the increased cost of finance will also negatively affect the ANC government’s transformation strategy and programmes going forward, thus ruling out any substantive transformation. S Africa, explained Cronje, has a labour market absorption rate of just 40%. As such, the economy “would require growth rates approaching 5% of GDP to secure a

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steep improvement in the absorption rate; failing which the country will remain deeply unequal with the balance of poverty and inequality resting in black communities.” In contrast, the consensus on the confidence about the financial stability and soundness of the S African banking system remains positive at least for the time being, albeit depending on what happens down the line as Gigaba unfolds his new economic policy. The combined impact of potentially lower growth rates, higher borrowing costs, distressed borrowers, and rising household debt levels, say analysts, may combine to squeeze earnings. However, S African banks, in terms of the Basel II and III capital ratios are well-capitalised, well-managed and regulated along the lines of international best practice, contends Trevor Manuel. The plans underway to move the financial services sector towards the Twin Peaks Model (TPM) will also contribute significantly to the modernisation of regulation. Several jurisdictions are seeking to adopt the TPM, which was inter alia pioneered by the UK, where the prudential supervision function of financial institutions are separated from their market conduct. In the S African context, the TPM of financial sector regulation will see the creation of a prudential regulator – the Prudential Authority – housed in the South African Reserve Bank (SARB), while the Financial Services Board (FSB) will be transformed into a dedicated market conduct regulator – the Financial Sector Conduct Authority.

Billions of rand were wiped off banks' balance sheets as a result of the reshuffle.

Delays to essential reforms

However, according to Manuel, what the change of personalities in the Finance Ministry will result in are further delays to the implementation of legislation to support regulation. In particular, the Financial Intelligence Centre Amendment Act, which has been processed and approved by both Houses of Parliament. “The President has still not assented to this legislation, which is a major setback to the sector. Similarly, the passage of the legislation to support Twin Peaks is

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delayed and the drafting of regulations to implement the legal framework is now massively delayed. So too is the Insurance Act, which will regulate the capitalisation of non-bank financial companies. S Africa has opted for a SAM (Solvency Assessment and Management) framework, rather than the European stock-in-trade ‘Solvency 2’ model. But until the legislation is passed, the regulations cannot be drafted. These sorts of delays are very costly when we are dealing with an industry that is extensively globally connected,” explained Manuel. However, the banking sector similarly is not immune to the vagaries of political shenanigans, for no sector can remain strong in the face of adverse circumstances. An immediate impact of the midnight cabinet reshuffle, for instance, resulted in R60bn ($4.5bn) being wiped off the balance sheets of banks in S Africa. This, agreed Manuel, will have a profound impact on the institutional strength of the financial institutions into the future. In recent times, as part of the agenda of promoting economic transformation and meaningful Black empowerment, the idea of establishing a state bank or Black empowerment bank is also being mooted by the government. This idea of either a state bank or a Black bank, according to Manuel, is inadequately debated. He suggests a cornucopia of questions that need to be discussed and answered before such a bank could be launched. These include: “Is the question that of ownership? If so, what would be the advantages of either a state or Black-owned bank? Would they be expected to lend at rates lower than those informed by the repo-rate (the rate at which the South African Reserve Bank lends to commercial banks in its jurisdiction)? If so, how will such institutions be subsidised? Could the state justify raising taxes that are then used to subsidise the interest rates of wealthy South Africans? What about repayments and the prospects of foreclosure? Should such opportunities be shut out because the banks are either state or blackowned?” These discussions, he contends, have not taken place, even if the slogans are extensively chanted. One of the major problems “across all of what should be the space in the public square devoted to debates on political economy”, according to Manuel, are frequently marked “by the absence of data and informed policy choices.” Absence of quality and independent data is a bane of many economies, especially those in emerging countries. This is periodically flagged by successive financial system surveillance programmes and consultations (including those of the banking and insurance sectors) conducted by the International Monetary Fund (IMF) and the World Bank. S Africa in this respect is no exception. As Manuel maintains, “South Africa will not deal with the many challenges, including broader transformation, if noise displaces reason.” n

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S O U T H A F RI CA Leading figures from the world of politics and business voiced criticism of President Jacob Zuma’s removal of Finance Minister Pravin Gordhan and expressed fears about the consequences of the country’s downgrade by S&P and Fitches.

What they said about President Zuma’s reshuffle… C OSAT U : P O O R W I L L B E M OS T A F F EC T ED BY D OW N G R A D E “COSATU [Congress of South African Trade Unions] condemns all those from both the ANC and its government, who have been downplaying the effect that the country’s economic downgrade will have on the poor. “The poor will be most affected by the economic downgrade and we reject any gruesome posturing and gravely retarded reasoning from some ministers and political leaders, who spout nonsensical statements for easy applause in front of credulous audiences. “It is outrageous that some people in government positions and leading our state-owned Entities are alleged to have said that they are not bothered by the collapse of the currency and by an economic downgrade. “While these kinds of economic illiterate statements are unacceptable and outrageous, we are not shocked by such verbal infelicities coming from the creatures of bombastic nonsense, who thrive on any applause that can be easily procured through flippant name calling and facile crowd pleasing.”

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Below: Members and supporters of the South African union Congress of South African Trade Unions (COSATU), during the May Day rally last year.


“This economic downgrade is a big deal for COSATU, which is first and foremost an economic entity with the responsibility to look after the interest of its members and the working class. “We are worried because the junk status will have inflationary results as it would result in an increase in borrowing costs not only for government but across the economy.  Currently South Africa owes more than 2.2 trillion rand which is more than 50.7% of the national income or GDP and pays R 160bn billion per annum in interest payment, which is very close to what government spends on social grants.” “COSATU’s call for President Jacob Zuma to stand down is actually meant to save the ANC from a possible electoral defeat in 2019 and is not motivated by any agenda to help unseat the ANC. The federation believes that the ANC needs to prove to the people of Sou th Africa that it has not lost its vocation for greatness, and can still be trusted to lead society. We cannot afford to have the convoy move at the speed of the slowest ship.” Sizwe Pamla, National Spokesperson, Congress of South African Trade Unions (COSATU), 11th April 2017 

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M A I M A N E : Z U M A U N IT E S C O U N T RY – AG A I NS T H I MS E L F “Jacob Zuma would never have guessed that he would unite the country like never before – in defencse of the Constitution, against corruption, against the self-interested destruction of our economy, and against the private capture of our state. Jacob Zuma has united the country – against him. “This downgrade by Fitch Ratings of both South wAfrica’s foreign and local currency credit ratings to junk status is a devastating blow to our economy, and yet another damning indictment of Jacob Zuma and those who persist in defending him. “Jacob Zuma has sabotaged our economy, and the hopes of millions of South Africans, to benefit himself, his family and the Guptas. It is the poor who will suffer the most, as there will be less money available for basic services, and jobs will be shed. There is only one wa y to get rid of Zuma. Parliament must vote him out. “The downgrade to junk status of both our foreign and rand-denominated ratings, will have a severe impact on our country. The ability of our treasury to compensate our budget deficit, through the issuance of bonds, is now placed at risk. Foreign investors are now likely to also steer away from South Africa, at a time when we need investment to create jobs.” Mmusi Maimane, Leader of the Democratic Alliance

M A N TA S H E : “ I ’ M V E RY U N C O M FO R TA B L E W IT H IT ” We were given a list that was complete and my own view as the Secretary -General, I felt like this list has been developed somewhere else and it’s given to us to legitimise it. “And my own view is that I’m very uncomfortable because areas where ministers do not perform have not been touched. Ministers have been moved and the majority of them were good performing ministers. I’m very much uncomfortable with it.”  Gwede Mantashe, ANC Secretary General

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SAC P : “ W E R EC O R D E D O U R O BJ EC T I O N ” “The SACP [(South African Communist Party]) wishes to state that as the norm, the President informed us of his intention to effect a Cabinet reshuffle, replacing both the Minister and Deputy Minister of Finance. We recorded our objection to the intended reshuffle. However after the meeting an unfortunate selective leak to various media houses has distorted the facts, sought to create a public impression the SACP is firstly responsible for the leaks but secondly has agreed to the intention.” Blade Nzimande, General Secretary, on behalf of the South African Communist Party (SACP)

R AMAPHOSA : “TOTALLY U NAC CEP TABLE” “The president has effected his Cabinet reshuffle. Before doing so‚ he met ANC officials. It was just a process of informing us of his decision. “It was not a consultation because he came with a ready-made list. I raised my concern and objection on the removal of the Minister of Finance‚ largely because he was being removed based on an intelligence report that I believe had unsubstantiated allegations about the Minister of Finance and his deputy going to London to mobilise financial markets against our country. “That I find totally‚ totally unacceptable. It reminded me of my own situation in 2001‚ when there was an intelligence report that I was involved in a plot to remove then President Mbeki. It disturbed me greatly. I went to Nelson Mandela‚ who said‚ ‘Don’t panic‚ I will handle this matter.’ “It was preposterous. Similarly‚ my strong objection to the removal of the Minister of Finance and his deputy is being based on spurious allegations. I told the president so. This is where we are. He has made his choice. The President has the prerogative to appoint ministers.” Cyril Ramaphosa, Deputy President, S Africa

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G I G A BA R EM A I NS C O N FI D E N T A F T E R D OW N G R A D E “Changing a certain individual won’t cause a credit downgrade…” Malusi Gigaba, then Finance Minister designate, said in response to the possible effects of the cabinet reshuffle announced on 31st March. Shortly after, S&P credit rating agency cut the country’s long-term foreign currency rating from BB+ to BBB(junk status) citing “the heightened political and institutional uncertainties that have arisen from the recent changes in executive leadership” as the principal cause. “I’m not saying it’s easy to get out of a rating downgrade, yet I remain confident. Ultimately what these rating reviews underline is that we need to ignite the country’s growth engine. When I walked into the office on Friday they had already made their decision,” Gigaba responded a day later.

“The executive changes initiated by President Zuma have put at risk fiscal and growth outcomes. We must now recognise the crisis we are in. This sovereign downgrade will lead to a steep erosion of already poor levels of investor confidence.” Cas Coovadia, MD of the Banking Association of South Africa

are African and female. “We want to move beyond the minority control of our economic assets towards democratic, inclusive and equitable economic relations of control and ownership. “We want to see more opportunities being provided for local producers to sell their products so that our hardpressed economy can grow. “We want to see more Black-owned companies benefiting from government’s R500bn procurement budget, so that we can further grow Black business and entrepreneurship. “We want to see more young people becoming entrepreneurs and obtaining support from government and the private sector. We want to see more black people becoming farmers or industrialists. “We want to see more Black people owning companies that are listed on the Johannesburg Stock exchange. “We also want to see an improvement in the implementation of the affirmative action policy especially within the private sector.” President Jacob Zuma addressing the Chris Hani wreath-laying ceremony, 10th April 2017

ZU MA : “ WE WANT TO MOVE BE YOND THE MINORIT Y C ONTROL OF ECONOMIC ASSE TS” “The ANC government defines Radical Socio-Economic Transformation to mean the fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom

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Banking from an African Angle Kenya’s most innovative bank implements Strands PFM Commercial Bank of Africa, or CBA, have recently launched their PFM solution, known as CBA Loop created in collaboration with Strands. CBA, the largest privately-owned bank in East Africa, is based in Kenya and has presence across several African countries. This will mark the first end-to-end banking proposition in East Africa and has sparked the attention of The Economist and the IFC SME Finance Forum. With innovation firmly at the top of their agenda as a means to grow exponentially in the coming years, PFM and subsequently BFM (tailored to SMEs) solutions will go a long way to addressing the needs of an increasingly mobile country with the youngest population in the world. CEO of Strands Erik Brieva says: “Africa offers a wealth of opportunities in terms of digital banking, and Strands is committed to helping banks in the region take advantage of the new financial revolution. We are proudly working with CBA to be one of the world’s biggest players in PFM and BFM”.

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African banking is extremely competitive, and the need to offer customers more than the traditional bank account is key to their success. Some 50% of Africans do not have access to a branch of their bank, but a huge 80% have a mobile phone, making the move into mobile banking services one that is more necessary than ever. As one of the fastest-growing continents on the planet, the need to understand how customers manage their money is ever greater; the focus is on getting it right now to face this imminent growth head on. CBA forms part of the Sustainable Finance Initiative (SFI), whose goal is to integrate sustainability into core business, resulting in financial and social inclusion for the underbanked in Africa. Strands as a long-term partner, not simply a solutions provider, affords banks like CBA, who have long been at the forefront of banking innovation in Africa, the tools to offer their customers a holistic banking service, a financial education and a more than valid reason to choose them over the competition.

Eric Muriuki Njagi CBA’s Manager of New Business Ventures

“CBA was keen to present our customers with account information in a format that aids the understanding of how money moves into and out of the customer’s accounts. Beyond listing of transactions, customers needed to have context on why (purpose), when (timing), how often (frequency), up to how much (scale), etc. This context is important to put meaning to these cash flows and help the customer make informed decisions on where, when and how to save, invest and/or borrow. This approach is relevant to both individuals and enterprises, that seek more from their banking partner. Strands is a key technology partner to CBA’s customer value proposition. The Strands PFM tools met our requirements for versatile and visually appropriate tools that could be integrated easily onto our technical architecture and product roadmap. The Strands team executed the PFM project with speed, which is dividend accrued from the maturity of their product and processes.”

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Transforming Nigeria's Industrial Sector Viably... As the Bank of Industry continues to be driven by its core values in pursuit of its Vision, Mission and Mandate, international and domestic rating agencies upgrade and affirm BOI's ratings.

CORE VALUES Service | Professionalism | Passion | Integrity | Resourcefulness | Innovation | Team Spirit VISION To be Africa's leading Development Finance Institution operating under global best practices. MISSION To transform Nigeria's industrial sector by providing financial & business support services to enterprises. MANDATE Providing financial assistance for the establishment of potentially viable large, medium, small and micro enterprises as well as expansion, diversification and modernisation of existing ventures and rehabilitation of ailing ones. |

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Nigeria’s Bank of Industry established to assist enterprises of all sizes from SMEs to large corporations as part of the country’s long-term development agenda, posted its most impressive performance in 2016, registering solid profit while assisting a record number of enterprises.

Bank of Industry: Doing well by doing good


ifteen years after its launch in 2001, Nigeria’s Bank of Industry (BOI) has continued to make giant strides in pursuit of its developmental mandate. BOI has invested over a trillion naira in more than 25,000 small, medium and large enterprises. The assisted ventures span several sectors of the Nigerian economy including agro and solid minerals processing, petro chemicals and polymer, cotton textile and apparels, automobiles, creative industries as well as Information Communication and Technology. These enterprises have had considerable impact on Nigeria’s economy including the generation of more than five million

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Top: The Dangote Cement mine in Obajana village in Nigeria’s central state of Kogi. Above: Waheed Olagunju, BOI’s Acting Managing Director and CEO.

direct and indirect jobs. BOI has demonstrated that a development bank can viably deliver on its mandate. The institution recorded its most impressive performance in 2016 by posting an operating profit before tax of N17bn, which represents a 44% increase over 2015’s N11.9bn. Its loans also rose by 10% to N171bn from N156bn in 2015. Disbursements to SMEs similarly went up by 42% within the same period to N8bn from N5.64bn. The ratio of non-performing loans dropped to 3.72% in 2016 from 5.87 in 2015. The average ratio of nonperforming loans in Nigeria’s banking system rose to 14%, in 2016 which is beyond the Central Bank of Nigeria’s threshold of 5%. Waheed Olagunju, BOI’s Acting Managing Director and CEO attributed the bank’s sustained stellar performances to the adoption of global best practices by the institution’s competent as well as passionate management team and staff. “This has culminated in the following high ratings of BOI: Fitch AA+; Moody’s Aa1; Agusto AA-,” he said. Olagunju, who began his 27-year banking career with the Nigerian Industrial Development Bank, which is BOI’s precursor institution, has been a consistent member of BOI’s management and later Board of Directors that propelled the bank’s transformation into one of Africa’s leading development banks. BOI has vindicated the African Banker magazine’s decision which in 2007 proclaimed it the Best Development Bank in Africa.

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Dr Fe m i O ye t u nj i, CEO of Cont i nenta l Rei nsur ance

Our task is to reduce risk as much as possible Continental Reinsurance, with footprints in all the African regions, has evolved into one of the biggest reinsurance companies on the continent. But there is still plenty of room for expansion, the CEO tells Christine Holzbauer.

You started by training actuaries. How did you end up as the CEO of Continental Re ? I obtained a PhD in statistics from the University of Manchester in the UK and am a Fellow of the UK Institute of Actuaries. Upon my return to Nigeria, I started the Alexander Forbes School to train young actuaries, since we do not have enough actuaries in Africa. After working for almost eight years in insurance – I owned my own company – I joined Continental Re in 2011 when the former CEO resigned. It was a completely new challenge for me. How did Continental Re acquire its current position? Continental Re will celebrate its 30th anniversary this year. It has evolved into one of the leading privately owned reinsurance companies in Africa and is the number one in Nigeria. It started in Nigeria, where the insurance market was overcrowded. Following the bank reforms in the early 2000s, the authorities raised the capital requirements, and the number of insurance companies shrank from 106 to 31. Of the six companies that were able to survive in reinsurance, only two are still in business today. From the begining, we realised there was a gap to be filled at the continent level. Our aim is to be the

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leading pan-African reinsurance company. We want to open more regional branches and be present in North, Southern, East and West Africa. Continental Re is a 100% privately owned company. We are able to take commercial decisions very quickly. Our objective is to turn Continental Re into the first truly pan-African reinsurance company. In order to have access and do business across Africa, it is important to act locally and have access to local resources. Continental Re has now become a truly pan-African company employing the best talents from across the continent. We hire the best candidates to work for us in Lagos, Nairobi, Gaborone, Tunis, Douala or Abidjan. However, we have no plans yet to enter the South African market, which is already well served. In 2016, we were able to reach $100m turnover and a prof it before taxes of $12m, representing respectively an average annual increase of 20% and 18%. Year after year, we have been able to increase the dividends we distribute to our stockholders, although at a sustainable rate. The next step in our strategy of expansion is to increase our capital by $50m this year and another $50m next year.


What are the special challenges of operating on a pan-African level? In the insurance business, everybody has t he sa me cu lt u re but i n reinsurance, it is different. There is huge diversity in Africa – many languages and different business practices. It is sometimes difficult to relate to one region or another. The laws and regulations can be different in each country. Yet, as the company’s name indicates, the founding fathers of Continental Re envisaged doing business throughout the continent right from the outset. Because of Nigeria’s geographical situation, business with our French-speaking neighbours is crucial for our expansion. That is why we strongly encourage the learning of French or English inside our company and many among us are perfectly fluent in both languages. We have not yet made it mandatory because it is better to let people see and understand by themselves the advantage of practising the two languages when they work for Continental Re. Take my own case: I was educated in English, so I had to struggle for many years in order to learn French. However, I believe that whatever languages we use, we are all Africans, share the same basic culture and can communicate. In East Africa, they

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mainly speak Kiswahili. In West Africa, whether you are a Yoruba or a Wolof, your lifestyle is the same. So it is better to look at the similarities rather than the differences if one wants to develop Africa further. What is the purpose behind the annual summit meetings you organise? I noticed over the years that the same issues were being discussed with our main clients and partners in different parts of Africa and decided to create a

platform where CEOs from insurance companies from all over the continent could come together to examine the challenges and opportunities for our

There are big opportunities everywhere in Africa and with better and more inclusive economic growth, the insurance sector should be booming.

industry. We share knowledge and experience and look for solutions. We had the fourth CEO meeting, “Prepared for the Future: Building our Insurance Legacy�, in Dakar this April. Can you tell us more about risk management in reinsurance? For us, risk management comes first. If we can better predict droughts, f lood i ngs a nd ot her nat u ra l catastrophes, we can manage risks better. The best part of our business is on reinsuring big industrial properties or engineering projects. The shipping industry comes next. One of the main challenges that we are faced with is in infrastructure. Many of our airports, bridges and roads are being built by the Chinese and insured and reinsured in China. But changes are afoot. Within CIMA (the regional insurance industry body for 14 countries in Francophone Africa), 50% of the risks must be insured by local companies. But there is still room for improvement elsewhere in Africa. How do you see the future ? T here a re big oppor t u n it ies everywhere in Africa and with better and more inclusive economic growth, the insurance sector should be booming. This is why I always say that we have a permanent view, rather than a long-term view. At Continental Re, we reinsure anything above $3m. As far as Nigeria is concerned, I remain optimistic for the future as long as the diversification of the economy goes on at a steady pace. And for Africa as a whole, I am convinced that we should trade among ourselves much more. First, because it is in our genes and, second, because this will boost our pan-African approach to doing business. There are already a number of African companies which are looking for African solutions and we are helping them with that. Our job is to take away the risk as much as possible and to find African solutions to African problems. n

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A S SU R A N C E The pan-African African Trade Assurance Agency was set up to facilitate intra-African trade and investment by providing appropriate insurance cover in what was considered a high risk environment. Governments, banks, investors and businesses have all benefited from its services but, CEO George Otieno tells Wanjohi Kabukuru, there is a lot more to come.

ATI – Making African projects bankable by reducing risk


rom his offices on the fifth floor of the Kenya Re Towers building, African Trade Insurance Agency (ATI) CEO, George Otieno gets a commanding view of Nairobi’s new business district, Upper Hill and the urban sprawl beyond. The landscape in front of him is littered with some of the most modern high rises you will find in sub-Saharan Africa. Major banks, insurance companies, stockbrokers, international trading firms and law firms populate the glittering skyscrapers. This is the financial hub of East Africa and beyond. “Previously,” says Otieno, “Africa was seen as a continent with little FDI flows and even less intra-African trade. The perception of a continent associated with political risk was high.” But, of course a lot has changed. “We would like to tell the world that Africa is open for business – there are a lot of opportunities,” says Otieno. “The returns on investment in Africa are 10 times higher compared to other regions.” Attracting investment ATI, a pan-African organisation specialising in providing political risk and trade credit insurance also goes by the name of Agence pour l’Assurance du Commerce en Afrique in Francophone Africa.

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Perceptions of unacceptably high political risks had made a good deal of intra-African trade virtually uninsurable by international firms. This stymied not only trade, but the associated credit lines and thus had a damping effect on investment. In a bid to break out of the deadlock, some members of the Common Market for Eastern and Southern Africa (COMESA) came together and worked with the World Bank, (and now the African Development Bank), to set up ATI. The aim, recalls Otieno was to at-

ATI’s capital has increased from about $90m to $220m with gross exposures also increasing from $706m to $2bn tract investments and facilitate trade by way of trade credit insurance and political risk mitigation. “The founders of ATI had a pan-African vision. That vision is well on the way to fruition. We have grown from seven to 13 members” ATI’s current members include: Benin, Burundi, Côte d’Ivoire, the Democratic Republic of Congo (DRC), Ethiopia, Kenya, Madagascar, Malawi, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe. Zimbabwe and Ethiopia joined the grouping fairly recently and high-flying Côte d’Ivoire joined in March. “We are still growing,” says


Otieno. “Several other countries are waiting to join. The Economic Community of West African States (ECOWAS) bloc of 15 states has also shown an interest in joining and this will be a major boost to ATI and African trade and integration as a whole. The vision remains to cover all of Africa.” Another boost to ATI’s pan-African vision is the recently approved mandate to cover transactions outside its member countries. This rule was first applied earlier this year in an energy sector transaction in Angola. The organisation's contribution is already impressive. ATI, for example has been involved in a variety of ventures including Kenya’s Lake Turkana Wind Power project, the modernisation of aircraft for Ethiopian Airlines and infrastructure development in Zambia, Kenya, DRC and Tanzania.

Exponential growth

Over the last six years ATI has experienced exponential growth with Otieno at the helm. “When I joined, our annual premium was $5m. Today it has reached $30m. We went from a loss-making position to a being a profitable entity in the last five years. We also plan to pay dividends for the first time next year, meaning we are now over the bend. We are positioning ourselves to go to the next level,” he says. He adds that ATI’s capital has

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increased from about $90m to $220m with gross exposures also increasing from $706m to $2bn. By offering banks cover that caters for non-payment risks, ATI provide lenders leeway to expand their loan portfolios. Terrorism and sabotage covers are also part of ATI’s folder products. Recently ATI, together with other reinsurers, paid $50m – the largest claim in Kenya’s insurance history – for the 2013 West-

gate terror attack. African governments are also catered for in ATI’s numerous products, which can be offered as substitutes for guarantees enabling sovereign borrowers to lower their debt ceilings. “We work closely with member countries to accord them cheap borrowing and credit enhancement. Our products also offer capital relief to lenders,” Otieno says.

ATI is now looking forward to setting up a major regional office in West Africa to cater for its clients in that region. “We do hope ATI will soon cover all of Africa,” Otieno says. “At the moment we have six countries who have already expressed their interest to join ATI.” ATI is A-rated by Standard and Poors (S&P) and it is the second highest rated African financial institution after the AfDB, which has helped its credentials internationally. “In the short run we need to cover half of the continent and make ATI more international. We want our brand to be recognised across the globe in the investment and trade space.” In keeping with its pan-African credentials, ATI employees are drawn from 20 different nationalities. “The diversity of our African nationalities here in ATI is our key strength,” he says. “We are reaching out to tell the world that projects in Africa are bankable by taking advantage of our services.” Ambition Over the last three decades George Otieno has crossed the whole African continent on insurance business. He started his insurance career in Pan Africa Re-insurance in Kenya. He then moved to Nigeria, where he stayed for 20 years as the Regional Director of Africa Re in West Africa, rising to become Head of Operations in various capacities, including overseeing the entire technical operations of the Group. He was later transferred to Nairobi to become the company’s Regional Director in charge of East and Southern Africa. In 2010 he was headhunted to head ATI as their first African CEO. Otieno who became a fellow of the prestigious Chartered Institute of Insurance at the tender age of 24, has only one ambition for the continent’s burgeoning insurance sector: “I want to leave an organisation that is sustainable and an African brand that will be known in the entire continent,” he says. n

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Jo s é F il e me no do s S a nto s Chai r m a n, Angola Soverei g n We a lth Fun d Angola’s $5bn Sovereign Wealth Fund was set up at the height of the country’s boom cyclethis decade. Its principal aims were to establish a stable source of income for future generations as well as to be a vehicle for high impact investment both in Angola and the rest of Africa. Three years on, we sat down with José Filemeno dos Santos to evaluate the performance of the Fund and how it is investing its money.

Fund favours private equity to stimulate development Can you describe your current investment port folio and the investment strategy of the Fund? From the beginning the Fund has been set up with a developmental mandate. There are three key objectives, one was to preserve capital, another one was to ensure that the government would get additional sources of financial revenues over the long-term. The investment project had to, in one way or another, benefit the Angolan people – so the investment portfolio that we have today more or less reflects these three divergent investment goals. Our portfolio right now has approximately 40% of securities – international securities, most of those fixed income securities; the largest tradable securities available. The remaining 60% are dedicated to private equity investment vehicles that are committed to invest at least half in Angola, whereas the rest can be invested in other countries across the sub-Saharan Africa region. Have these private equity vehicles managed to deploy that capital in an effective manner? Do you find it hard to find bankable projects ultimately? In terms of private equity funds, more projects are reviewed than financed. A lot of the work goes into selecting

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and screening projects, into due diligence, and selecting the ones that appear to be more secure in terms of the risk/return characteristics – then creating conditions to invest in them. It’s a process that takes a little bit more time than in more advanced markets because it’s quite a new practice in this region of the world. A lot of the projects are not at a bankable stage when they are screened for the first time, but in many cases there is the potential because the assets are there; and in other cases the management of the project is reasonable enough to be able to make the right changes in order to make the project investable. So, if at the end of the day it takes a little bit more time, it’s a learning process but it is going quite well. We believe we’ll be able to show some of the initial results of this work once the 2016 numbers are audited. Quantum Global were managing the infrastructure and hospitality funds. Are they also looking after healthcare and real estate? Yes. The two initial funds were infrastructure and hotel funds. Just after they were set up we started work with the same company to carry out the management of the five private equity investment funds


added between 2014 and 2015. They are actually the only investment management company that we are dealing with at the moment. We initially expected to be able to have more investment managers on board but unfortunately the capital payments by the government were halted by 2014 so we weren’t able to carry out that part of the strategy. What should the role of sovereign wealth funds be? I interact with some of the other sovereign wealth funds in the region. The overall approach of these funds seems to be more leaning towards a private equity investment model. But their scope compared to the national pension funds, and even to the reserves being managed by the central banks of the respective countries, is still quite small. We would like to see more money going into specific budgets, especially on the equity side, but we understand that a lot of state funds are still invested primarily in securities. I get the sense that they would like to see much more done and would like to see much more FDI or much bigger action by the private sector. This can definitely be stimulated by having sovereign wealth funds committing funds side by side with

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the private sector, specifically in large key projects. Over the past 18 months currency issues have been problematic. As an investor how do you de-risk the challenges? It varies, depending on the type of assets that we are looking at. When focusing on commodities the expectation is that they can be exported from the country that they originate from, thereby generating foreign currency revenues. When that’s not the case what we look at is investing in assets that will gain a significant value over the medium term and that are attractive enough to allow us an exit strategy

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by opening up the capital of the projects, basically by allowing other investors to come in and buy our stake or potentially having these assets listed in a stock exchange. In terms of private equity investment the capital started to be deployed in 2015. In rough terms, 25% or less of it has been deployed, so liquidity is not a concern yet – the main concern is finding the right assets to invest in. Over the slightly longer term these are considerations that we’ll have to start taking very seriously into account. But by then we might have a different situation in terms of the commodity prices, which are the basis of revenue for many African countries, and this might not be a

concern anymore – we’ll have to see. What’s your outlook on Angola and African opportunities in general? Our outlook on Angola is quite positive. Angola is a country that has in the last 15 years depended significantly on just one industry. Right now it’s having to speed up its process of developing new industries. What we see on the ground is that the country is adapting very fast – agriculture is becoming much more visible in terms of its production of goods which are consumed locally. Five years ago most of the food consumed in the country was imported, but today a lot of this consumption is supported by local production. So we are witnessing a shift from the country being an economy dependent on imports to an economy which is producing. Across Africa other countries are adapting similar strategies to cope with this downturn in commodities. There are countries that are heavily committed to industrialisation, such as Ethiopia and Nigeria, and for us this dynamic change is very interesting because it opens up these economies to investment into a new way of thinking. When we committed to private equity investments in the beginning it was a way of working that was very, very new for this part of the world. However, people are starting to understand the benefits of having an investor such as a sovereign wealth fund committed not only to developmental projects but also bringing the commercial aspect as a key priority for ensuring that the projects are sustainable and that they are able to create an impact on people’s lives and on the country for the long term. So we believe that the outlook is positive. It will not be easy, it requires a lot of work and a lot of commitment, both from the government side and also from the private sector side, but overall we believe the results will be good over the long term. n

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T H O U G H T L E A D E RS H I P A large number of private sector projects, particularly in the power sector in Africa, flounder because government institutions often lack the capacity, and the experience, to carry through complex functions. But rather than let this stop them, Ghana’s Cenpower team went ahead with their ambitious project and in the process, helped create invaluable capacity in the country’s power institution. David Bowers* tells the story.

Building institutional capacity the AFC way –


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hile it is common knowledge that Africa suffers a crippling power deficit (the African Development Bank estimates that some 620m Africans have no access to electricity), it is less well recognised just how complex putting together a power project can be. The first characteristic of a largescale power project is the sheer number of actors involved – both in the private as well as public sectors. You have the developer who coordinates the whole enterprise; then you have the financiers, the designers, the engineers, the project managers, the administrators and a host of other highly skilled professionals on one

side – and several government institutions on the other. The institutions will each have different and sometimes competing priorities and interests The Ministry of Energy wants to maximise power installed on the grid; the Ministry of Finance wants to minimise government and taxpayer liabilities; the energy regulator wants to ensure that a prudent price is charged to protect rate payers; the state-owned utility wants to maximise service delivery and maintain healthy credit metrics. For the project to become bankable, progress smoothly through its various stages and succeed in its ultimate goal of delivering electrical capacity and energy to customers,

these various institutions would need to function not only effectively but, just as importantly, in a coherent and cooperative fashion. In any industry and for any sector which requires strong government cooperation, this is a tall order. It demands a high level of institutional capacity – a factor which is very often in short supply, especially in Africa. It is not surprising therefore that this lack of institutional capacity is often cited as the arch villain responsible for the continent’s energy deficit. So how to break the impasse? While there are any number of training and technical assistance programmes available to governments and plenty of theories,

Keep in mind that project financing is a complex, interdisciplinary task. No project financier learns their trade in a classroom.

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T H O U G H T L E A D E RS H I P the actual capacity to gets things done can only be accumulated in the doing. As Rwanda’s President Paul Kagame has said so often: “If we wait until our institutions have developed their full capacity, we will wait forever for projects to get off the ground.” At the Africa Finance Corporation (AFC), we take this argument a step further. We believe that one of the most effective ways to build institutional capacity is to roll up your sleeves and just do it – utilising, of course, international best practices and the support of recognised specialists in the field. In the process, government institutions obtain the opportunity to put theory into practice. This in turn enables effective, cohesive institutional capacity to emerge.

A case in point

A case in point is the 350MW Kpone IPP project, the first project financed independent power project (IPP) in Ghana, owned by Cenpower Generation Company Limited (Cenpower). The AFC (the largest shareholder in Cenpower) has been able to build institutional capacity in-country by doing just that. To recap: the Ghanaian founding shareholders of Cenpower, led by Nana Brew-Butler, (the current Board Chairman of Cenpower), began the project in 2000. The project company was incorporated in 2003. In 2005, the shareholders partnered with eleQtra (which operated as InfraCo at the time) to continue development of the project. In June 2007, Ghana’s Energy Commission granted Cenpower a generation licence, with the licence number ending in ‘001’ signifying the first ever private generation licence issued by the country. In t he sa me yea r, a MOU was signed with the state-owned utility, Electricity Company of Ghana (ECG,) to lay out principles for negotiating a power purchase agreement (PPA). Two years later, in August 2009, the first PPA was signed

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between Cenpower and ECG. The developers knew that the PPA as it stood, was not bankable. They decided to close out the negotiations and bring in other investors and lenders of international stature to the table to help bolster their case for bankability requirements. AFC acquired a controlling interest in the project in 2010 and was able to make progress on critical areas of PPA bankability shortly after it became involved. While one major hurdle was overcome, another one loomed. Given that Cenpower was Ghana’s first project financed IPP, there was insufficient institutional capacity available within ECG to assess and respond to the developers’ requirements. With the assistance of USAID, an independent financial and legal advisor, Nexant, was appointed to advise ECG and other parties in government. This move was to have profound implications in negotiations.


For example, some cardinal lender requirements, such as requests for liquidity support and government support, which had been regarded as excessive and unnecessary by the ECG previously, could be projected in a context of international best practice for bankability. On the heels of this, substantive progress was made on negotiating a bankable PPA and a Government Consent and Support Agreement (GCSA) to backstop ECG’s obligations. Over the next two years, an amended PPA and GCSA were negotiated between ECG, the government and the developers. The second version of the PPA was finally signed in 2012, five years after the signing of the first MOU.

Going beyond the classroom

This takes us back to the core of this article – how institutional capacity can be built in the doing. Keep in mind that project finance is a complex, interdisciplinary task of balancing and allocating risks. No

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Risk allocation is learned through years of negotiation, reviewing reports and legal agreements, examining models and drawing on a wealth of precedent.

project financier learns their trade in a classroom. A classroom helps, but risk allocation is learned through years of negotiation, reviewing reports and legal agreements, examining models and drawing on a wealth of precedent that informs legal, commercial, financial and technical decisions. In 2005, when eleQtra first entered the deal, these specialised capabilities were limited in Ghanaian institutions. Ebenezer Baiden, trained as an energy economist and now General Manager for Regulatory and Governmental Affairs at ECG, recalls the effects of working with Cenpower over this period: “We got to know the interests of various parties – lenders, the EPC contractor, the O&M contractor and how they view the project,” he says. Cenpower was a single legal entity, but numerous competing interests needed to be understood and balanced to negotiate a bankable PPA from the offtaker perspective. The whole process, he adds, “really helped

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ECG in building legal, technical, operational and negotiating capacity” and understanding “how to put the facts together.” He has no doubt that Cenpower very much contributed to the development of Ghana’s institutional capacity. Baiden’s says that greatest lesson he acquired was how to draw on the human resources that existed within ECG to process the various requests, negotiate counterproposals and ultimately obtain internal approval. One of the stiffest challenges on ECG’s side was negotiating the liquidity support for Cenpower and securing internal approvals for it. The liquidity support required significant commitments from the Bank of Ghana and a guarantee structure that was unprecedented from ECG’s typical requirements. He recalls an incident that illustrates the institution’s growing confidence in their negotiating skills. He was informed, on a public holiday, that some lenders had arrived and wanted to meet with the ECG team. Assuming this was an informal getting together, he and a few colleagues turned up at the Novotel Hotel in Accra in their casual clothes – only to be confronted with a group of 40 in full, formal business attire. Undaunted, the ECG team proceeded with their presentation. Recalling the incident, Oliver Andrews, Executive Director and Chief Investment Officer at AFC, says Baiden was a “formidable negotiator”. The suits in full regalia on the other side of the table had not fazed him one bit. The upshot of AFC’s attitude to take the bull by the horns and cross bridges when they came to them in terms of institution capacity was that after more than 10 years of development, hundreds of meetings and millions of dollars spent, the Cenpower project achieved financial close in December 2014 and is now nearing construction completion. But that is only part of the story. Baiden reports that ECG has now executed more than 20 PPAs,

and the institutions is now able to negotiate PPAs and evaluate issues independently. Developers and advisors who worked on Cenpower project report similar progress on the other side. Amandi, the second IPP in Ghana, achieved financial close in late 2016 after less than five years of development. That project started negotiating a PPA in late 2012 and it was signed in 2013. The GCSA and PPA both followed a template established for Cenpower, and the PPA negotiation process was cut down from more than five years to one year. Ebbe Hamilton, co-founder of eleQtra who had worked on the project since 2005, says that developing IPPs in Gha na is completely different today. EleQtra recently negotiated a PPA for another Ghana power project in the course of three meetings held over three months and incurring costs of only tens of thousands of dollars. AFC’s vision is to be the leading African institution in infrastructure financing on the continent. The success of Cenpower, and more critically its approach, is a clear example of why we cannot achieve our vision if we continue to wait for projects to achieve financial close and invest using plain vanilla debt and equity instruments. Funding is readily available for a bankable project, but a lot of patient and persistent development comes first, which often includes extensive education for government parties on the complex world of project finance. In the case of Cenpower, we achieved much more than financial close for a single project. By proactively and diligently working with multiple stakeholders, AFC was able to create capacity in key institutions that has driven and, we are convinced, will continue to drive, the transformation of the power sector in Ghana. * David Bowers is the AFC VicePresident Investments (Power).

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Banker Adesina_op-ed_Q2_2017

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T H O U G H T L E A D E RS H I P The key to Africa’s industrialisation and economic transformation lies in developing the continent’s massive agricultural potential. With the right policies and support, the sector can become a trillion dollar industry. Dr Akinwumi Adesina* explains how the African Development Bank (AfDB) will help drive this process through its 10-year Feed Africa strategy.

AfDB to invest $24bn to unlock Africa’s agriculture potential Using agriculture and agribusiness to bring about industrialisation in Africa

No region of the world has ever moved to industrialised economy status without a transformation of the agricultural sector. Agriculture, which contributes 16.2% of the GDP of Africa, and gives some form of employment to over 60% of the population, holds the key to accelerated growth, diversification and job creation for African economies.

Below: Dr Akinwumi Adesina, President of the African Development Bank.

But the performance of the sector has historically been low. Cereal yields are significantly below the global average. Modern farm inputs, including improved seeds, mechanisation and irrigation, are severely limited. In the past, agriculture was seen as the domain of the humanitarian development sector, as a way to manage poverty. It was not seen as a business sector for wealth creation. Yet Africa has huge potential in agriculture – and with it huge investment potential. Some 65% of all the uncultivated arable land left in the world lies in Africa. When Africa manages to feed itself, as – within a generation – it will, it will also be able to to feed the 9bn people who will inhabit the planet in 2050. However, Africa is wasting vast amounts of money and resources by underrating its agriculture sector. For example, it spends $35bn in foreign currency annually importing food, a figure that is set to rise to over $100bn per year by 2030. In so doing, Africa is choking its own economic future. It is importing the food that it should be growing itself. It is exporting, often to developed countries, the jobs it needs to keep and nurture. It also has to pay inflated prices resulting from global commodity supply fluctuations.

When Africa manages to feed itself, as – within a generation – it will, it will also be able to to feed the 9bn people who will inhabit the planet in 2050.

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T H O U G H T L E A D E RS H I P Risk sharing as a financing solution

To drive agro-industrialisation, we must be able to finance the sector. Doing so will help unlock the potential of agriculture as a business on the continent Trillion dollar sector

The food and agribusiness sector is projected to grow from $330bn today to $1 trillion by 2030, and remember that there will also be 2bn people looking for food and clothing. African enterprises and investors need to convert this opportunity and unlock this potential for Africa and Africans. Africa must start by treating agriculture as a business. It must learn fast from experiences elsewhere, for example in South East Asia, where agriculture has been the foundation for fast-paced economic growth, built on a strong food processing and agro-industrial manufacturing base. This is the transformation formula: agriculture allied with industry, manufacturing and processing capability equals strong and sustainable economic development, which creates wealth throughout the economy. Africa must not miss opportunities for such linkages whenever and wherever they occur. We must reduce food system losses all along the food chain, from the farm, storage, transport, processing and retail marketing. To drive agro-industrialisation, we must be able to finance the sector. Doing so will help unlock the potential of agriculture as a business on the continent. Under its Feed Africa strategy, the African Development Bank will invest $24bn in agriculture and agribusiness over the next 10 years. This is a 400% increase in financing, from the current levels of $600m per year. A key component will be providing $700m to a flagship program known as ‘Technologies for African Agricultural Transformation’ for the scaling up of agricultural technologies to reach millions of farmers in Africa in the next 10 years.

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Finance and farming have not always been easy partners in Africa. Another pillar of the Bank’s strategy is to accelerate commercial financing for agriculture. Despite its importance, the agriculture sector receives less than 3% of the overall industry financing provided by the banking sector. Risk sharing instruments may resolve this by sharing the risk of lending by commercial banks to the agriculture sector. Development finance institutions and multilateral development banks should be setting up national risk-sharing facilities in every African country to leverage agricultural finance. And the African Development Bank is setting the pace based on a very successful risk sharing scheme that I promoted while I was Agriculture Minister in Nigeria. Rural infrastructure development is critical for the transformation of the agriculture sector, including electricity, water, roads and rail to transport finished agricultural and processed foods. The lack of this infrastructure drives up the cost of doing business and has discouraged food manufacturing companies from getting established in rural areas. Governments should provide fiscal and infrastructure incentives for food manufacturing companies to move into rural areas, closer to zones of production than consumption. This can be achieved by developing agro-industrial zones and staple crop processing zones in rural areas. These zones, supported with consolidated infrastructure, including roads, water, electricity and perhaps suitable accommodation, will drive down the cost of doing business for private food and agribusiness firms. They will create new markets for farmers, boosting economic opportunities in rural areas, stimulating jobs and attracting higher domestic and foreign investments into the rural areas. This will drive down the cost of doing business, as well as significantly reduce the high level of African post-harvest losses. As agricultural income rises, neglected rural areas will become zones of economic prosperity. Our goal is simple: to support massive agroindustrial development all across Africa. When that happens, Africa will have taken its rightful place as a global powerhouse in food production. It could well also be feeding the world. At this point the economic transformation that we are all working for will be complete. n *Dr Akinwumi Adesina is President of the African Development Bank. The 2017 AfDB Annual Meetings in Ahmedabad, India, in May focuses on ‘Transforming agriculture for wealth creation in Africa’.


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African Banker, Quarter 2, 2017  

While economic and political turbulences swirl around them, this issue shows how African bankers are not only surviving, but in many cases,...

African Banker, Quarter 2, 2017  

While economic and political turbulences swirl around them, this issue shows how African bankers are not only surviving, but in many cases,...