Page 1

TOP

FINANCE SPECIAL EDITION

200 BANKS

S E P T E M B E R 2 013 - w w w.t heaf r ic arepor t .com

STOCK EXCHANGES • REGiONAl ANAlySiS • KEy DEAlS • US fUNDS • STAR PERfORmERS • START-UP CAPiTAl

NIGERIA: Eye kept on bad banks MAURITIUS: More than a tax haven? ZIMBABWE: The telco that ate a bank

WILL

AFRICA BREAK WITH THE

WORLD BANK?

In an exclusive interview, World Bank President Jim Yong Kim says the Bank has learnt from its mistakes GroUPE jEUNE AFrIqUE

INTERNATIONAL EDITION Alge!ia 550 DA • Ang"la 600 Kwanza • Aust!ia 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denma!k 60 DK • Ethi"pia 75 Bi!! • F!ance 4.90 € Ge!many 4.90 € • Ghana 5 GH¢ • Italy 4.90 € • Kenya 350 shillings • Libe!ia $LD 300 • M"!"cc" 50 DH • Nethe!lands 4.90 € • Nige!ia 600 nai!a N"!way 60 NK • P"!tugal 4.90 € • Sie!!a Le"ne LE 9,000 • S"uth Af!ica 30 !and (tax incl.) • Spain 4.90 € • Switze!land 9.90 FS • Tanzania 6,500 shillings Tunisia 8 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zimbabwe US$ 4 • CFA C"unt!ies 3,500 F CFA


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CONTENTS

TOP

FINANCE 200 SPECIAL EDITION

BANKS

S E P T E M B E R 2 013 - w w w.t heaf ric arep or t .c om

THE AFRICA REPORT

STOCK EXCHANGES • REGIONAL ANALYSIS • KEY DEALS • US FUNDS • STAR PERFORMERS • START-UP CAPITAL

NIGERIA: Eye kept on bad banks MAURITIUS: More than a tax haven? ZIMBABWE: The telco that ate a bank

THE AFRICA REPORT | FINANCE SPECIAL SEPTEMBER 2013

WILL

AFRICA SPECIAL EDITION • SEPTEMBER 2013

BREAK WITH THE

WORLD BANK?

In an exclusive interview, World Bank President Jim Yong Kim says the Bank has learnt from its mistakes GROUPE JEUNE AFRIQUE

INTERNATIONAL EDITION Algeria 550 DA • Angola 600 Kwanza • Austria 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denmark 60 DK • Ethiopia 75 Birr • France 4.90 € Germany 4.90 € • Ghana 5 GH¢ • Italy 4.90 € • Kenya 350 shillings • Liberia $LD 300 • Morocco 50 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 9,000 • South Africa 30 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 6,500 shillings Tunisia 8 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zimbabwe US$ 4 • CFA Countries 3,500 F CFA

42

STOCK MARKETS – HUNT FOR LIQUIDITY In a push to gain weight on the global stage, African stock exchanges are finding new ways to pool resources and attract fresh listings from miners and smaller corporates

EXCLUSIVE RANKING

14

TOP 200 BANKS

WILL AFRICA BREAK WITH THE WORLD BANK?

BANKING ON GROWTH

Ethiopia, Rwanda and Morocco are leading the charge of African countries who are junking old Bretton Woods orthodoxies in favour of strong industrial policy – but can the Bank’s new president keep them in the fold? Includes an exclusive interview with Jim Yong Kim 4 EDITORIAL

CAPITAL MARKETS 42 STOCK MARKETS – The hunt for liquidity 46 HANNIBAL - Taming the funds 48 RESOURCE FINANCE - Dhir steers Delonex to East Africa 50 PRIVATE EQUITY – US funds take to Africa 56 DEALBOOK – A round-up of M&As, bonds and loans

TRENDING 6 WHAT TO WATCH

COVER CREDITS: CHRISTOPHE CHAUVIN

FRONTLINE 14 WILL AFRICA BREAK WITH THE WORLD BANK? 22 EXCLUSIVE INTERVIEW: World Bank President Jim Yong Kim

INNOVATIVE FINANCE

BANKS

58 ENTREPRENEURS – Emergency on planet startup 61 OPINION – Allon Raiz on getting pitch perfect 62 SAVINGS – Investment clubs hit the big time 64 ALTERNATIVE CURRENCIES – Bangla-Pesa faces trouble

24 NIGERIA – A decade of reforms; Consolidating gains 30 AFRICAN EXPANSION – Taking a continental view 32 PROFILE – Sizwe Nxasana, chief executive, FirstRand 37 ZIMBABWE – The telco that ate a bank

82

Africa’s banks are shrugging off the global financial crisis, but access to capital and stronger regulation remain key challenges. In-depth regional analysis, interviews and profiles

COUNTRY FOCUS 69 MAURITIUS – Strategic shift towards Africa. Including PEOPLE TO WATCH, tax haven debate and where the bankers go to relax TOP 200 BANKS 82 OVERVIEW – Banking on growth 88 RANKINGS – Top 200 banks 97 SOUTHERN AFRICA – Searching for growth 100 WEST AFRICA – Banks prepare for harder times 102 EAST AFRICA – Banking on integration 104 NORTH AFRICA – Politics changes the game 106 LAST WORD – By Sentletse Diakanyo

ADVERTISERS’ INDEX SAB p 2; STANDARD BANK p 5; GROUPE BOA p 8-9; ADDAX PETROLEUM p 11; RICHEMOND CARTIER p 13; ATTIJARIWAFA BANK p 19; TAR DIGITAL SUBS. p 21; PORSCHE p 21; ADEXEN p 27; CARMIX METALGALANTE p 27; INTERPLAST p 29; REPUBLIC OF COTE D’IVOIRE p 33-36; AFRICAN DEV. BANK p 40-41; BGFI HOLDING CORP. p 45; SAHAM GROUP p 47; CORP. COUNCIL ON AFRICA p 51; PROJECT DEV. INTERN. p 53; SYMBION POWER p 53; BEAC p 56-57; THE AFRICA CEO FORUM p 65; EUROMONEY CONFERENCES p 67; STATE BANK OF MAURITIUS p 68; OMNICANE MNGT & CONSULTANCY p 71; ABAX CORPORATE p 73; HAREL MALLAC EXPORT p 77; SWIFT - SIBOS p 79; AIR MAURITIUS p 81; REGUS MAURITIUS p 81; BGD p 87; GLOBAL MEDIA ALLIANCE p 89; SOCIETE GENERALE GHANA p 91; CNN EMEA p 93; TAR SUBSCRIPTION p 95; EKO HOTELS & SUITES p 99; SKYVISION GLOBAL NETWORKS p 107; ECOBANK ETI p 108

To order more copies of The Africa Report Finance Special Edition: sales@theafricareport.com THE AFRICA REPORT

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4

EDITORIAL BY PATRICK SMITH

The elephant climbs the ladder

T

ime for a bit of reckless cheerleading to counter all those numerate sceptics out there. Yes, the elephant will scale the ladder, and it will not bring the house crashing down. By elephant, I mean those countries outside the West that host 88% of the world’s people. Yes, there are reams of financial statistics showing developing economies heading south after a long boom. But there are plenty of demographic, technological and cultural factors pointing in the opposite direction. The fashionable new gloom about Africa and other developing economies is overblown. That does not make the transformation of those economies any easier, but it assuredly remains on the agenda. After a decade of unprecedented growth, the prognosis for those countries – whether emerging or frontier states – is much rockier, say the number crunchers in Western treasuries and their banker friends. The rising-star economies are under attack on two fronts. The first wake-up call comes from the Federal Reserve and Wall Street, sheathed in innocuous-sounding jargon. Policymakers in developing economies were told in June that they should brace themselves for a tapering of quantitative easing. That is not a remedy for an intestinal complaint but a warning that the US Federal Reserve will cut its $85bn-a-month bond-buying programme as the green shoots of America’s economic recovery start growing. Effects of the cutback on liquidity are already evident. Money is tighter, and countries such as Ghana and Nigeria that are floating bonds are not getting the rates of a year ago. Freespending investors are becoming more cautious, and portfolio flows are ebbing. For those African states chasing money to finance transport and energy projects, this is no mere statistical blip. Crudely put, the economic balance of power looks to be tilting back to the rich world, particularly in the USA’s massive domestic market, where consumer demand is growing again. Yet, in theoretically rich Europe, the crisis persists. Youth unemployment is averaging 30-55% in Greece, Spain, Portugal and Italy, all of whose economies have shrunk alarmingly since 2008.

On the other battlefront for developing countries the slowdown in the mega-economies of China and India seems to reinforce the sense of a pendulum swinging Westwards and richwards. On that, it is hard to gainsay the number crunchers. This year, the International Monetary Fund forecasts that China will grow by 7.8% and India by 5.6%, compared to double-digit growth in the decade before the 2008 crisis. On average, this year African economies are forecast to grow faster than Asian ones. So how seriously will this emerging market slowdown hold back Africa’s prospects? Undeniably, the days of a soaraway Chinese economy dragging the rest of the developing world along in its wake are over for now. China is getting older and more middle class. It is also trying to manage a rapidly rising debt burden of about 50% of its gross domestic product. India – with one of the highest current account and budget deficits in the world – has a different set of more overtly political problems. Faced with a resurgent West, both Beijing and New Delhi are looking at some sweeping policy adjustments of their own. This new era of rebalancing East and West offers opportunities and risks for Africa. If African economies are less able to grow in Asia’s slipstream, that will put more reliance on intra-African trade. That should have been happening anyway, say the wise economists of the African Development Bank. They may now become more influential on policy. Activist economics will work in Africa. Its economies can, with smarter diplomacy and better infrastructure, pull in Chinese manufacturing investment. With relentless investment in education and entrepreneurship, Africa can maximise the power of its workforce, the world’s most youthful. And African states are still far from effectively using the continent’s reserves of untapped arable land, 60% of the world’s total. There is no question that the emerging market slowdown is upon us, but the ingenuity shown over the past decade does not have to slow down too. It is time for the thinkers to help push that elephant up the ladder. ●

This new era of rebalancing East and West offers opportunities and risks for Africa, which can no longer grow in Asia’s slipstream

THE AFRICA REPORT

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TRENDING

AHMED RAMADAN/AFP

The re-entrance of the army centre stage has opened the next chapter of Egypt’s transition

Egypt Political conflict shakes the market

Regulators must engage on these rigid rules, particularly when transactions are as small as they often are for rural consumers”

Brotherhood and deposed president Mohamed Morsi. The new order, under the stern control of defence minister General Abdul Fattah el-Sisi, which includes a phalanx of technocrats such as prime

Naveed Riaz Chief executive, Citigroup’s Africa division

minister Hazem el-Beblawi, has pledged to follow a roadmap of political reforms culminating in elections next year. For Zin Bekkali, an expert on the region who runs Silk Invest in London, the prospects are for

“difficult but not always happy progress towards democracy”. Egypt’s transition should be measured against similar countries, Bekkali argues: “In Indonesia, it took two years after Suharto was forced from power for the new government to stabilise the political scene and grow the economy.” Egypt’s path will be rougher, but Bekkali insists it is unlikely to descend to the horrors of Algeria’s civil war in 1990s or the rumbling internal conflicts of Pakistan and Lebanon. There are some positive economic signs at the corporate level, Bekkali says. Orascom and Egypt Telecom are doing well, as are the big banks lending to the government. But beyond the short-term spikes, “investors should really be focusing on what Egypt will be doing in five to 10 years’ time […] as a key country of 85 to 90 million people in the Middle East and North Africa”. Senior economist at EFG-Hermes, Mohammad Abu Basha says the bigger banks are earning well: “They are holding lots of government paper,

Inter-country banking is going to continue with the requirement for larger capital reserves. The temptation to use extra capital for investment will be there” ZHENG HUANSONG/AFP

E

conomic uncertainties loom as large as political ones in Egypt after the trauma and turmoil of the clashes in July and August that left more than 1,000 dead, most of them supporters of the Muslim

BENJAMIN BEAVAN/REUTERS

6

Jean-Louis Ekra President, AfreximBank THE AFRICA REPORT

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TRENDING

Riaan Stassen CEO, Capitec Bank South Africa

INDIA HAS STOLEN a march against China by striking a deal with Botswana, allowing two Indian banks to start operations there. Bank of India and State Bank of India hope to tap into the undimmed appetite for diamonds in Asia. Bank of India chair Vijayalakshmi Iyer (pictured) claims that financing local SMEs is also a priority. The move follows Botswana’s decision to add more value to its diamond exports. In August 2012 it transferred diamond sales from London to Gaborone. Around 40% of global diamond sales – some 32m carats worth $6bn annually – now take place in the Gaborone Diamond Park. Indian companies like Blue Star Diamond Group had hoped to get their hands on Zimbabwean diamond stockpiles, complaining that with the Chinese in control of diamond resources Indian dealers will have to pay premium rates for rough diamond supplies. Botswana will be a welcome consolation prize. ●

Ecobank From the regulators to Nollywood

THIS YEAR’S BOARDROOM BATTLES at the transnational giant Ecobank could provide the script for a Nollywood extravaganza. The future of a venerable and pioneering institution is at stake: a glamorous whistleblower cries foul; the chairman and son of one of the founders cunningly fights his corner; the dashing and ambitious new chief executive with international connections is thrown into the eye of the storm; the long-distance phone lines buzz as angry shareholders confer; then enter the regulators in neatly-pressed suits. At the centre of the story is Ecobank chair Kolapo Lawson, who faces claims that businesses associated with him had failed to pay off substantial state debts. After an emergency board meeting on 6 August called by Ecobank’s biggest individual shareholder, South Africa’s Public Investment Corporation, the bank stated that Lawson has “acted in good faith throughout.” Game over? Not quite: the Ecobank board is to meet West Africa’s bank regulators in early September. With fast-growing operations in 34 African countries (see page 30), Ecobank remains one of the continent’s hottest financial properties. ●

I think what Lula did in Brazil is a good example of how he encouraged the private sector [and] made sure the economy kept growing, whilst re-distributing wealth towards the bottom of the pile” Ngozi Okonjo-Iweala Nigerian minister of finance

THE AFRICA REPORT

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WALLY SANTANA/AP/SIPA

Unsecured lending is seen as a swear word”

Botswana Cash, carat and clarity

JOSHUA NAVALKAR/NETWORK

maturities are mainly between three to 12 months, helping to finance the fiscal deficit, which increased sharply after the revolution.” The wider priority, says Abu Basha, is to restart growth. Since 2011 gross domestic product growth has sunk to 2-3%, compared to 5-7% in the previous decade. “There are lots of infrastructure projects to be completed […]. They will create jobs and provide services. The government can stimulate the economy if it uses the aid money [$12bn from Saudi Arabia, Kuwait and the United Arab Emirates] wisely.” Mohamed El-Erian, the Egyptian chief executive of PIMCO, is more cautious. “While the Egyptian situation is not as dire as Syria’s, it too lacks the institutional and political anchors needed to restore stability quickly,” he wrote in the Financial Times in the wake of the August clashes. Ahmed Kamaly, an associate professor of economics at the American University in Cairo, is also pessimistic: “We always say in Egypt that the situation can’t get any worse, but then surprisingly it does.” ●

The private sector will not finance billions of dollars in a project; it’s too big a bite from a standpoint of their balance sheet” Jay Ireland CEO of General Electric Africa

7


TRENDING

11.5 11 10.5 10 9.5 9 8.5 8

FOTOLIA

Bonds The end of the great money-printing extravaganza GHANA INFLATION RATE Annual change on Consumer Price Index

Jul/11

Jan/12

Jul/12

Jan/13

Jul/13

Standard Bank ICBC Shaking up commodities

SOURCE: TRADINGECONOMICS.COM – GHANA STATISTICAL SERVICE

AFRICAN GOVERNMENTS continue to take advantage of all-timelow borrowing rates on the international bond markets, raising money to ease national deficits and fund infrastructure projects. South Africa raised R8.68bn ($878m) in July and Ghana announced in August that it was likely to return to the foreign bond market in 2013. While the volume of debt issuances across Africa points to a race to get a piece of the money, markets experts say African governments are taking considered decisions to exploit affordable market conditions. The exception may be Ghana’s July eurobond

sale, which raised ¢1.6bn ($750m), but paid a high premium to do so. Commentators say that the timing was illconsidered, given the country’s strained macroeconomic situation as well as it being a holiday period. The health of international money markets is linked to the US Federal Reserve’s programme of Quantitative Easing (QE), with anxieties that an end to QE will result in investor flight from emerging markets. However, there is no evidence that this has resulted in a race for African governments to raise money through bond sales – in fact some parties may have delayed their plans due

Over the next five years, Zimbabwe is going to witness a unique wealth transfer model that will see ordinary people take charge of the economy” ZANU-PF adverts placed in local papers

to these volatile conditions. Stuart Culverhouse, chief economist at Exotix, says: “While the Fed’s plans are certainly at the forefront of investors’ minds, what it would mean for future costs isn’t a one-way bet.” As Rwanda and Nigeria reap the rewards of successful issuances in 2013, Kenya and Senegal have pledged that their sovereign bonds will be making debut and renewed market appearances. Culverhouse argues that African governments are wise to look to such sources to raise public finances, though he points to the danger of countries to taking advantage of rates “just for the sake of it.” ●

THE INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ICBC)’s $700m bid to take over the London-based commodity trading business of South Africa’s Standard Bank points to a wider reorganisation of the commodity trading and financing business. ICBC chair Jiang Jianqing says the deal was key to the bank’s new direction in Africa and beyond. A $5.5bn purchase by ICBC of 20% of Standard Bank went through in 2007. Banks from countries such as Brazil, China and India, which are among the biggest customers for primary commodities, are eagerly snapping up the predominantly Western-based commodity financing businesses. Developing-country governments are increasingly uneasy about mammoth trading outfits such as Vitol, Glencore, Cargill and Koch, which dominate the global commodity business, determining prices and supply. ●

China is very advanced in technology, so when you look at advanced technology and the cheap financing, then you have got what you are looking for”

RICHARD CARSON/REUTERS

10

Irene Muloni Uganda’s energy minister THE AFRICA REPORT

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PERFORMING TOGETHER Addax Petroleum, subsidiary of the Sinopec Group, is an international oil and gas exploration and production company focused on Africa and the Middle East. During the past year, we have pursued our growth ambition and expanded our activities into the North Sea. www.addaxpetroleum.com www.addhopefoundation.org

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2011 Expansion in Cameroon 2009 Acquisition by the Sinopec Group 2005 Entry into Kurdistan Region of Iraq 2004 Operations in Nigeria, Cameroon and Gabon

Each step makes a differ difference and difference is our stre strength


TRENDING

The Question Are bankers in Africa interested enough in the real economy? Around the world, bankers are chastised for not being prepared to lend to economies that are under stress and companies that need credit to survive – and Africa is no different

Yes

Samir Gadio

I’venevermetany bank official who Emerging suggestedthathe markets doesn’t care about this. The reality is strategist at that you’re not going to see banks Standard Bank actively chasing SMEs or the retail market and lending to them because of the level of non-performing loans, which increase rapidly as you move into these segments. Then when interest rates and inflation are unpredictable how are you supposed to calculate your risk for the next 10 years? There is also the question of the risk profile in the bank itself. If the management of banks are willing to take some risks it might be that we see some positive development in this space. As for government debt, even where the lending rates are relatively low there is a push from government to make sure the banks buy government paper. That’s more or less how it works, behind the scenes at least. It puts the banks in an awkward position – I’m not sure you can really blame the banks for that. ●

We are absolutely clear what we want to do and how to do it differently” Jeremy Awori The managing director of Barclays Kenya operations heads off criticism of a 14% half-year drop in profits

KAMBOU SIA/AFP

12

No

Lungisa Fuzile

Focus on the real economy is esDirector general sential. In South of South Africa’s Africa, banks’ involvement in National Treasury Africa dictates that investment be geared towards the real economy. In the rest of sub-Saharan Africa equity markets are generally underdeveloped, which requires that commercial finance be mostly provided by banks rather than market finance. In academic parlance, this would be described as bank finance dominance over market finance. Bank finance traditionally relies on mobilising domestic deposits to undertake longer-term investments, but in sub-Saharan Africa, low domestic savings rates have meant that banks use their external balance sheets instead. In this way, South African banks leverage South African savings (mainly corporate) for investment and other uses. This function serves the real economy but not in the neat academic models of banking. ●

What’s strange is that for successive years companies report losses – and, in fact, they are not making profits […] but they’re underreporting and as a result they are not paying corporate [taxes]” Thabo Mbeki Former president of South Africa THE AFRICA REPORT

Despite the change in leadership in Mogadishu, the misappropriation of public resources continues in line with past practices” UN report on corruption in the Somalia Central Bank

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cartier.com

New Collection TANK MC


14

FRONTLINE

Will Africa leave the World Bank behind? Governments across the continent are looking for new development models after the policies of privatisation and liberalisation seem to have run their course

By Nicholas Norbrook

T

he arrival of Jim Yong Kim as president of the World Bank bearing promises of a cultural revolution comes at a critical time for Africa’s prospects (see interview on page 22). Africa is now the world’s fastest-growing continent, but questions about policy – the failure to develop viable industries and reduce worsening youth unemployment and widening inequality – remain the subject of fierce debate. That argument pits advocates of a more state-led development strategy, which has produced impressive results in East and South Asia, against the veteran advocates of market economics and liberalisation – the old ‘Washington consensus’ pushed by the World Bank and the International Monetary Fund in the 1980s. The terms of the debate are shifting, it seems. World Bank vice-president

for Africa Makhtar Diop told The Africa Report in 2012: “If you look at the structure of the economies in Africa 10 years ago and today, there hasn’t been much change.” Africa remains a producer of raw materials and an importer of finished goods. So what can change the structure of African economies? Has the World Bank been helping or hindering African chances of following Asia’s great industrial leaps? Some African leaders have already made up their minds. Taking Asia as inspiration, and increasingly using Asian finance as development capital, they have junked important elements of the ‘Washington consensus’ in favour of a strong developmental state. Ethiopia’s late Premier Meles Zenawi, a theoretician of the need to reclaim the state, was most explicit in his rejection of complete faith in the market: “Developing countries face formidable market

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failures and institutional inadequacies […] which can adequately be addressed only by an activist state.” For African leaders, surveying the past 50 years of development as counselled by the West, the question is clear: Why should India, China and South Korea have succeeded when they ignored the privatisation and liberalisation dictums of the ‘Washington consensus’? THE CLASH OF IDEAS

THE AFRICA REPORT

FINANCE SPECIAL

ILLUSTRATION BY CHRISTOPHE CHAUVIN

This contest of ideas is far from academic. Hundreds of millions of lives and billions of dollars are at stake. If African economies can use new ideas and technology to consolidate growth and make it self-sustaining, the next two decades in Africa could be as transformational as the last two in Asia. Some African governments have already made their choice alongside Ethiopia. Both the Moroccan ● ● ● S E P T E M B E R 2 013


FRONTLINE

16

©XINHUA/ZUMA/REA

The Chinabuilt new AU headquarters in Ethiopia, perhaps the foretaste of a coming re-alignment in Africa over development pathways?

and the Rwandan government have strong investment arms. Rwanda’s Crystal Ventures has helped companies break into the roadbuilding trade, for example, and has spun off profitable businesses in the construction, food processing and security sectors. And, in a big roll of the dice, Morocco’s King Mohammed VI has wagered the country can become the next hub of car manufacturing and aeronautical engineering on Europe’s fringes. The Tanger-Med complex hosts Renault and Bombardier as key tenants and is a testament to a thoroughly planned industrial policy. Policymakers are asking if the World Bank, in particular its new leader, South Korean-born Jim Yong Kim, can bridge the gap between those governments trying state-led policies and the old market purists. Kim was an astute choice to run the World Bank. He is a non-ideological leader for an age that seems to have had enough of grand narratives. “Here is the news for Africa: I am an evidence guy and so I don’t come into this saying that a particular interpretation of history is what we’re then going to take and implement on everyone else.” Kim was a member of the ‘Fifty Years is Enough’ movement in the 1990s and

●●●

edited a book condemning World Bank policies called Dying for Growth. “What we criticised them for is this sense that as long as you focus on the macroeconomic fundamentals everything else would fall into place.” FINANCIERS MULTIPLY

He arrived at the Bank in July 2012 at a critical juncture. The development business, for many years the domain of the World Bank, is now an open field. There was a sixfold increase in private sector capital flows between 2000 and 2007, reaching $86bn. That makes the World Bank just one lender among many – putting into perspective the $9bn that the World Bank will disburse to Africa in 2013 through concessional loans from the International Development Association.

The fact that Kim is the first nonwhite to run the Bank helps to deflect the traditional irritation that developing countries suffer from being lectured to. Given the pressure from China, India and Brazil to select a candidate of the developing world, the fact Kim was born to South Korean parents may help to attenuate the disappointment that Nigeria’s Ngozi Okonjo-Iweala or Colombia’s José Ocampo did not win the post. Refreshingly, Kim’s schooling and professional background are in the domains of anthropology, medicine and on-theground development work, rather than the usual Bank candidates parachuted in from the worlds of politics and finance. This sets him apart from other more strict adherents to the Washington consensus who have sat in the top offices of 1818 H Street in Washington DC.

SOUTH KOREA versus GHANA South Korea and Ghana were peers in 1957. Today, Samsung and Hyundai sell smartphones and cars around the world and South Korea’s gross domestic product per capita of

$32,000 – equal to the European Union average – is over 20 times greater than Ghana’s THE AFRICA REPORT

$1,570.

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AFRICA AND THE WORLD BANK

STATE SQUANDER

So will he temper African governments’ desires to get more involved in the economy? Certainly a clear case can be made against state involvement in industry. From around the world, at different periods in history, politicians and businesspeople have come together to bleed the public purse dry in the name of industrial policy. Africa has some acute examples, such as the hundreds of millions of dollars that went into the steel works at Ajaokuta in Nigeria, Zimbabwe’s own steel company ZISCO, Tanzania’s General Tyre East Africa, and Volta Aluminium Company, the aluminium smelter in Ghana. As Kim himself suggests, successful Asian economies such as China, South Korea, Taiwan and Japan managed to introduce market mechanisms into such state support. Often state subsidies were dependent on export receipts, which are difficult to falsify. If a particular company could show it was successful at exporting a particular good, then it received more state support. “Japan’s Ministry of International Trade and Industry was superb at structuring competitive, highly transparent fights for industrial licences, staggering the entry of different firms to manage the mix of protection and competition, and forcing businesses to upgrade their production equipment”, writes Joe Studwell in How Asia Works. The debate around this subject at the World Bank has been dormant for decades. Recently, a new front was opened by Justin Lin, the Bank’s chief economist from 2008 to 2012. Significantly, he was the first chief economist the Bank has ever had from China. Lin’s work did not advocate a fully-fledged embrace of industrial policy, but he did talk about the role of the ‘facilitating state’. Echoing Meles, Lin writes: “Developing economies are ridden with market failures, which cannot be THE AFRICA REPORT

FINANC E SPECIAL

There is this idea that strong industrial policy is not compatible with democracy, but that’s actually wrong – look at France, it probably has a more centralised bureaucratic approach than many of its neighbours, but who can doubt its democratic credentials?” Ha-Joon Chang

To put the blame squarely on the Structural Adjustment Programmes (SAP) is wrong, because protectionism in Africa, even before the SAPs, was not delivering the goods. It was developing capital-intensive industries, whereas Africa’s comparative advantage was in labour” Shanta Devarajan

ignored simply because we fear government failure.” In this mild version of state-directed development, there are useful things a state can do to encourage industrialisation. One is providing subsidies aimed at innovation in order to help companies to bear the cost of coming up with new products. Another is government assistance in coordinating all infrastructure, institutional, legal, financial and educational improvements that need to happen before more sophisticated companies can develop. Morocco is a classic example of this, with a raft of government-led development institutions – from the Caisse de Dépôt et de Gestion to the Société Nationale d’Investissement – which have been critical in creating an industrial fabric around Tanger-Med that

includes training institutes designed by the private sector and paid for by government. At the Bank, Lin published New Structural Economics under the World Bank imprint. One chapter of the book is a debate between Lin and South Korean economist Ha-Joon Chang. Chang is the author of a book excoriating the “Bad Samaritans” – World Bank included – who advise developing countries to adopt policies that they themselves did not follow. Chang’s ideas find ready defenders on the continent. “British industry was protected during the industrial revolution,” says Central Bank of Nigeria governor Lamido Sanusi. “In America, Alexander Hamilton protected infant industry; the Asian countries also did”. Chang’s vision of state-led development is more muscular. It takes the

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SHANNON JENSEN FOR JA

SMITH SEAN/THE GUARDIAN/SIPA

Kim is also the first Bank president who can talk about South Korea’s development with authority. “Even during the time when there was such strong industrial policy, there was intensive competition among the chaebols [conglomerates] inside Korea. So Samsung and LG and Hyundai and Daewoo at that time were killing each other trying to compete […] this was not your classic command economy by any stretch of the imagination,” explains Kim.

FRONTLINE


FRONTLINE

AFRICA AND THE WORLD BANK

example of South Korean steel company POSCO. The World Bank refused to fund it in the late 1960s on the grounds that Korea did not have reserves of coking coal and iron ore, and its companies were exporting fish and clothes. POSCO is now the third-largest steelmaker in the world and one of the most profitable. Ethiopia has also decided to leapfrog into heavy industry, creating the Metals and Engineering Corporation (METEC) in 2010. It will have the $5bn Grand Ethiopian Renaissance Dam as an anchor client. The Bank has yet to make a decision over whether to fund the dam. Lin was certainly an outrider in the Bank and his talk of industrial upgrading was greeted enthusiastically by African leaders for whom World Bank emphasis on reducing poverty rather than boosting industrialisation wears thin. “Industrialisation is not a

luxury for Africa but a necessity for its maybe,” says Shanta Devarajan, formerly long-term survival,” the African Union Africa chief economist for the Bank, now Commission chairwoman Nkosazana chief economist for the Middle East and Dlamini-Zuma told delegates at a March North Africa. conference in Addis Ababa. The challenge is in designing the But how far does the Bank want to take mechanisms through which subsidies Lin’s ideas? Chang relates a conversago to the intended beneficiary. The Bank tion where Lin revealed that barely 10% is involved in a fertiliser subsidy scheme of his staff went along with his ideas. in Tanzania that introduced a voucher The main case against industrial policy is that a The challenge is in designing strong developmental state mechanisms so that subsidies quickly dissolves into crony go to the intended beneficiary capitalism, with picking winners turned into picking friends. “Its a razor’s edge you are playing system. “So we do it, but we’re also pretty with here! If you have an enlightened naïve,” says Devarajan. “There is some bureaucracy with perhaps a military attempt at keeping the rents from begovernment or at least a government ing misused – then we did an analysis able to bring along the powerful indusin Tanzania and found that 60% of the trial groups in the direction of greater vouchers went to local politicians and economic growth and stay on top, then their families.” Unsurprisingly, the successful East Asian governments were the ones that IN T ER V IE W managed to corral the private sector into productive sectors of the economy without getting captured. Joe Studwell says: “Big-time entrepreneurs who are not effectively disciplined by a developing country government become the PRESIDENT, AFRICAN DEVELOPMENT BANK oligarchs of Southeast Asia – or Russia, or Latin America.” He could have added of Africa. BRUNO LEVY/THE AFRICA CEO FORUM

18

Donald Kaberuka No models to follow

TAR: Who in Africa is best placed to take advantage of wage inflation in China? DONALD KABERUKA: The country doing it now in a remarkable way is Ethiopia. Already many companies are relocating to Addis Ababa, taking advantage of the low energy prices – $0.03 per kWh, five times cheaper than China; taking advantage of the large population – 85 million people; and also very competitive labour costs. Why not throw the Washington consensus out of the window like Ethiopia has and copy South Korea or China?

Copy what? There is no model to copy. China copied nobody. What Africans now agree upon is learn as you go, develop your own model of development. That model of development might be a combination of many things – state capitalism, but also some degree of market capitalism is very important. It would be a huge blunder to say everything in the Washington consensus is wrong – no it isn’t. One of the reasons African countries are holding up well in the international crisis is because in the 1980s we did a lot of structural adjustment, which Europeans now must do. That built our capacity for shock

absorption. Development is not like a lift or an escalator; you have to go up the stairs. It’s a tough slog, but by the time you are up there you are very fit. Morocco has had success in using the state to jumpstart the social housing market. Should other African countries do the same? All countries that have succeeded have used the state to solve market failures. Morocco’s an excellent example of creating an inclusive economy, with people owning their own homes. But you need an exit strategy. At some point the market has to take over. ● N.N.

CARRY A BIG STICK

Lamido Sanusi has caught public attention in Nigeria for his own embrace of industrial planning. His dismissal of eight bank chief executives in 2009 following a huge stock market bubble did much to reduce the levels of moral hazard in the sector. He believes in encouraging entrepreneurs to invest productively – for example, showing the diesel cartel in Nigeria, which had been sabotaging the power sector for its own short-term gains, that much greater riches are around the corner if Nigeria can keep the lights on. “You create a lot more money by investing in a refinery, so stop being a marketeer! So you transform them from primitive accumulation into capitalists. The US had its robber barons, all the J. P. Morgans, etc.” Ultimately, this is where the argument over industrial policy will live or die. Will METEC resemble POSCO or Ajaokuta? A general launched POSCO, and Ethiopian army officers run METEC. They may have the discipline to see the project through, though, as Nigeria’s ● ● ●

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AFRICA AND THE WORLD BANK

experience shows, a military background is no guarantee. Crucially, the managers at METEC will be driven to develop their skills and technology with the help of others, which was one of the keys to POSCO’s success. METEC ●●●

has brought in France’s Alstom, China’s Poly Group and United States-based company Spire. “We’re doing this in collaboration,” METEC spokesman Michael Desta told reporters. “We want to learn from them.”

If African governments can rein in their entrepreneurs, then they may be tempted to follow the lead of Ethiopia, Morocco and others. If they cannot, perhaps they would be better off heeding the Bank’s warnings. ●

Ghana’s cocoa sector was allowed a partial privatisation, which reaped the best of both worlds

No room for the state The World Bank pushed for the state to get out of the development business in the 1980s, but proponents of a developmental state are making a comeback in Africa

P

erhaps it was the political fervour at the time, with Margaret Thatcher and Ronald Reagan’s marketfundamentalismetchedsoclearly against the centrally planned economies of the Soviet Union. In any case, “‘stabilise, privatise and liberalise’ became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counselled,” writes Princeton University’s Dani Rodrik. Certainly Africa’s recollection of the Structural Adjustment Programmes (SAPs) remains vivid. From the 1980s onwards the state was distrusted as a development partner. For Morten Jerven at Simon Fraser University, author of Poor Numbers, one of the critical mistakes of the Bank during the restructuring of the 1980s and 1990swastheassumptionthattheprivate sector would automatically fill in for the withdrawing state institutions: “The overwhelmingfocuswasonqualityratherthan capability.” Soforexample,whentheSAPs

stripped out the agricultural extension programmes that financed and handed out inputs to farmers across Africa, the Bank assumed that private companies would take up the burden. They did not, astheIvoriancocoasectordemonstrated, especially when compared to Ghana. The Ghanaian government managed to convince the Bank only to part-privatise the Ghana Cocoa Board, and today it is in a much better state. BRAIN DRAIN

Another problem stemming from that period was the brain drain that still cripples Africa. Instead of helping African governments take the courageous political decision to cut staff numbers, the Bank allowed governments to slash salaries by 50%, sparking an exodus of doctors, nurses, engineers and administrators to better paid jobs in Europe or the United States. “In the early period of privatising the Zambian mining sector, they could have

JANE HAHN/PANOS-REA

20

privatised much more cleanly and to much better buyers, but politically it was such a difficult thing to do that it didn’t happen”, says World Bank chief economist for Africa Alan Gelb. “The lifeboat is not a good place to make high-quality economic decisions,” he says. A nuanced view is emerging. Some policymakers are now saying that macroeconomic reforms were necessary, but that the role of the state in nurturing industrial progress has not yet been settled. “At the time that those programmes were introduced,” says Alan Hirsch, former head of South Africa’s Department of Trade and Industry and economic adviser to South African president Jacob Zuma, “something dramatic was needed to try and get governments to think better about what their job was and what the job of the private sector was.” But, at the same time, he argues that the focus was on privatisation – and reducing the role of the state – instead of on what was needed, which was liberalisation. “Sometimes the World Bank got mixed up between privatisation and liberalisation. Liberalisation was actually more important than privatisation and in many countries that happened the wrong way round. Certainly in South Africa it happened the wrong way round as well in some important sectors like in telecoms,” says Hirsch. The result, in South Africa, was the creation of predatory monopolies such as Telkom. Even Western banking stalwarts like Citibank’s Africa economist David Cowan argues that the privatisation agenda has run out of steam: “I think people understand that privatisation as promoted by Margaret Thatcher and the Adam Smith Institute and Ronald Reagan and company is not the panacea. And so people look at the Asian development model and ask how can the state drive development; how can parastatals or Korean chaebols or whatever drive development?” ● N.N.

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FRONTLINE

AFRICA AND THE WORLD BANK

INTERVIEW

Jim Yong Kim PRESIDENT, WORLD BANK

A reset moment on H Street The World Bank president who came into office in July 2012 is taking the institution in a more pragmatic direction and admits that it has made mistakes on agriculture and infrastructure TAR: People are worried about North Korea, but perhaps they should be more worried about South Koreans taking over the political and the economic levers of world government, even taking over YouTube with Psy. Is it a testament to South Korea’s economic emergence? JIM YONG KIM: Ban Ki-moon [secretary-general of the United Nations] himself went to school literally underneath a tree. Both of my parents were refugees. People of my generation remember that in the 1950s Korea was as poor as most African countries. One of the things that you see in South Korea is that there is absolutely no whiff of a curse of natural resources. We had none. And so I think people always assumed that without incredibly hard work, working harder and doing more than everyone else, there’d be no chance for South Korea to survive as a country. A recent report by Global Financial Integrity and the African Development Bank details $1.3trn being lost through tax evasion, often by multinationals in the resource sector. Is the World Bank taking the issue seriously? I think a good question is, is the world starting to take these

issues seriously? It was a very important step for Prime Minister David Cameron to set as the agenda for the G8 meetings ‘tax, trade and transparency’. There were the eight heads of the G8 countries, there was Christine Lagarde [managing director of the International Monetary Fund] and myself and José Angel Gurría from the OECD [Organisation for Economic Cooperation and Development], and then there were heads of state from five African countries who made it very clear that this is a huge issue for them.

[Tax evasion] is a huge issue. I think there has to be fairness in the system To give you a sense of how difficult it was, they wanted to come to some great agreement at the G8 – and there were many, many declarations of wanting to do this and wanting to take the next step – but there was no great regime announced on transparency or taxation. This is a huge issue. I think there has to be fairness in the system. There is a lot of anger in Africa about the subsidies on agriculture in the United States, Europe

THE JOURNEY TO WASHINGTON 8 DECEMBER 1959 Born in Seoul 1993 Earned a PhD in anthropology from Harvard University March 2004 Became director of the World Health Organisation’s HIV/AIDS department March 2009 Named the first Asian-American president of Dartmouth College July 2012 Became the 12th president of the World Bank Group


RYAN RAYBURN/WORLD BANK

FRONTLINE

and Japan. couldn’t the Bank going to lose all their money. We play a leadership role here? have the Multilateral Investment At one point, in an unfortunate Guarantee Agency. We have the effort to focus the activities of the IFC [International Finance CorWorld Bank Group, we had deporation] that’s working with the cided to get out of two areas: one private sector… was infrastructure and the other We’re going to have to work one was agriculture. And that was even harder but that’s what we’re a mistake. So what are we doing doing. It’s not so much that we’ve in agriculture? Well, part of it is changed our ideology. I think it’s just getting involved in providthat we’ve become less ideoloing technical assistance. Growgical. And we’ve sat back and ing up in Iowa, one of the most effective sysIt’s not that we’ve changed tems that I’d ever seen our ideology, but we’ve in terms of the fusion become less ideological of knowledge was the agricultural extension system that existed throughout said: “What does Africa need right the United States. Part of it is just now?” They need energy; they giving farmers [in Africa] better need private sector investment; techniques, but there has been a they need jobs; they need health; lot of criticism around land grabs and they need education. What’s and we share the concern. We are it going to take for us – as, for exnot in the business of facilitating ample, quantitative easing slows the process of land grabbing at all. and interest rates go up – what’s We take the position that smallit going to take for us to do that? holder farmers are the backbone of agriculture in Africa, but we Does this mean a more pragalso think that there is a role for matic approach? large-scale agricultural efforts. If we just focus on the big ideas we miss the details, which is what You have said the Bank has to be countries want. So for example, the countercyclical arm ready some of the most interesting and to soften the blow of economic important innovations in healthdownturns. Is this because the care have happened in places like West had such a Keynesian reIndia, which has the best eye hossponse, that it’s okay now to junk pitals, frankly in my view, in the Bretton Woods ideology? world. So how do they get to have If we’re going to end poverty the best eye hospitals in the world and boost shared prosperity in at a tiny fraction of what it costs, African countries, one of the critsay, in the UK to do the same ical things is we have to make thing? Just to give you a sense of sure that these countries have scale, the Aravind Eye Hospitals enough financing to build the do half as many cataract surgeries infrastructure that they need to as the United Kingdom does. The grow their economies. And so UK does 600,000; they do 300,000. even in a period of very low inThe UK spends $2bn a year to do terest rates many African counthose 600,000 cataract surgeries; tries still had problems getting Aravind Eye Hospital spends $18m access to long-term capital, and […] with better outcomes than so we already had been working the UK. What are they doing that on improving access to long-term might be helpful in Africa? So the capital for African countries. We’re Africans don’t want me to stand coming in, what we’re saying is up and talk to them about monetwe’re going to put down a big ary policy, right? I mean, I could. chunk of money, we’re going to What they want to know is how in do everything we can to crowd in the heck did they provide so many private capital so that we can build cataract surgeries at such a low these energy projects. We need to price with such high quality. ● somehow give a private investor Interview by some assurance that they’re not Nicholas Norbrook in Washington

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24

BANKS NIGERIA

Easing the gridlock


25

Independent financial analyst Jude Fejokwu* looks back on a dramatic 10 years for Nigerian banking, and delivers an eight-point plan to help the sector consolidate its gains

T

he past decade of banking in industry has greatly improved. “Many Nigeria has not been for the of my friends from other sectors tell me faint hearted. The combinthe same thing,” says Tony Elumelu, ation of a large population former chief executive of United Bank and a large economy has of Africa (UBA). “The workforce in the driven international and domestic inbanks is among the most sophisticated terest in the sector – with investors often and talented in the entire economy,” attracted more by the market’s potenhe argues. tial than its reality. After the 2004 bank The non-performing loan ratio for the consolidation and the rapids of the stock sector was less than 9% as of 31 Decemmarket bubble and crash of ber 2012, compared to 23% 2009, Nigeria’s banks now in 2004. The level of finanA decade of find themselves in calmer big decisions cial intermediation has and better regulated waters. also improved as the banks Nigeria now has 22 lihave enhanced their riskcensed commercial banks; management capabilities 21 are fully operational, and intellectual knowhow. while Savannah Bank has Many bank managers have not recommenced full bankrealised that the retail marAUGUST ing operations since the ket is where the potential central bank reinstated its lies. They are aggressively licence to operate in Febstrategisingandcarryingout ruary 2009 after its earlier their action plans to benefit revocation in February 2002. from the windfall that is exThe Nigerian Central The newest addition to Nipected to emanate from the Bank announced geria’s commercial banklargely untapped retail mara dramatic set of ing sector is Heritage Bank, ket in Nigeria and beyond. reforms, the most which formally commenced eye-catching of which was the N25bn operations on 4 March 2013. INCREASED RATIO minimum capitalisation The bank is not new in the Thanks to regulatory entrue sense of the word as it forcement, the banks are was formerly called Société less reliant on public-sector Générale Bank of Nigeria. deposits. In July the inIt regained its operating lidustry regulator increased cence in 2010, having had the cash reserve ratio from it revoked in 2005 after it 12% to 50% on public-sector AUGUST failed to recapitalise. deposits for all tiers of govThings have plainly imernment, including minisproved. Nigerian banks are tries, departments, agennow better capitalised, with cies and companies. This 18 of the 21 fully operational new rule came into force Concerned about banks having tier-1 capital on 7 August. the mismanagement of funds at several in excess of N25bn ($156m). This progress came via Nigerian banks, They now also have much two major reforms. The new Governor Lamido better corporate governance Central Bank of Nigeria Sanusi sacks 8 bank practices. The competency (CBN) embarked on NiCEOs and introduces of the professionals in the geria’s most ambitious a risk-based framework

2004

GEORGES OSODI/PANOS-REA

2009


BANKS

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The second reform was the new riskbased framework set up by the CBN that enabled the banking sector regulator to run stress tests for all of Nigeria’s banks. The CBN ran these tests in the second half of 2009 and then sacked eight bank chief executives. The CBN deemed that the managers had mismanaged customer deposits and eroded shareholders’ funds at their respective banks. This led to another round of mergers and acquisitions, which reduced the number of Nigeria’s banks from 24 to 20. The CBN then created a ‘bad asset’ bank in 2010. The Asset Management Corporation of Nigeria (AMCON) now owns three of the eight banks that had their CEOs sacked. All of Nigeria’s banks now contribute 0.5% – it was initially 0.3% – of their total assets at the end of every fiscal year to a sinking fund established to finance AMCON’s operations. Prior to the reform period, Nigeria’s banking sector was weak, fragmented and unsound, with little regulatory activity. Nigeria had 89 banks prior to the announcement of the mandatory recapitalisation. Most of the banks were relatively small, with few branches and many political interests and family ties driving their formation and continued existence. Public-sector deposits were the focus of many of the banks trying to raise their deposit bases. Managers often granted loans with impunity to

40

Gross earnings (Nbn, left scale) Pre-tax profit (Nbn, left scale) Return on Equity (%, right scale)

300

SOURCE: AFRINVEST

SINKING FUND

Profitability (profit margin versus asset turnover in 2012)

400

Fir st

reform to date in August 2004 with a 13-point plan. The most audacious and widely discussed reform was the mandatory recapitalisation of banks to N25bn. The deadline for compliance was 31 December 2005. This major reform led to the reduction of Nigeria’s banks from 89 to 25 through mergers, acquisitions and forced closures. This enabled the 25 banks remaining at the time to reap the benefits of economies of scale.

SOURCE: GROUPE JEUNE AFRIQUE

26

family, friends and business associates Guinea – says, “We must understand with little or no collateral. Unsecured that capital raising for banks is a conloans were the order of the day. Bank tinuous thing.” balance sheets were highly unsound Most Nigerian banks are still focused in an environment of this nature. It on lending to federal and state governwas common for banks to use deposments as well as companies in volatile its belonging to the general public and sectors of the economy: oil and gas, the government for private interests. mining, credit and financial institutions Customer service and technology utiland general commerce. Other than govisation were weak; they existed more ernment, these are speculative sectors in pages of praise in the newspapers of the economy. Banks in Nigeria have than in reality. Banking was largely nonbeen known to play to the gallery and responsive to the needs of its customthis is still prevalent today. ers. But have all these bad habits now disappeared? Banks in Nigeria are still One problem that refixated on growing their asset mains is a focus on prestige base via territorial expansion derived from size rather than quality. Nigerian banks are still raising funds domestThe banking industry has been imically and internationally to fund their pervious to change except when forced operations, and branch expansion is a to heed directives from the industry major beneficiary of the capital generregulator, the CBN. This apathy to volated. To name a few, Sterling Bank, Diauntary acceptance of best practices has mond Bank and Skye Bank are currently reduced the pace of progress. looking for fresh capital. First Bank is planning to launch a $300m eurobond NETWORK OVERLOAD after roadshows in the United States Short-term fixes for perennial proband United Kingdom later in 2013. The lems have continued unabated. For yield guidance on the bond is 8.5%, example, a lot of banking systems have something Standard Bank’s emerging been incapable of handling traffic on markets strategist Samir Gadio sees as their networks. The banks’ immediate “fairly valued”. response has been either to upgrade to a But this demand for capital is often a newer version of their existing software result of the quest for size. The majoror to change their software provider. ity of banks have national, regional or Meanwhile, the real problem is finding international expansion plans. Banks software that leaves ample room for in Nigeria are still fixated on growing operational traffic growth. Guaranty their asset base driven by territorial Trust Bank and Standard Chartered expansion. Skye Bank chief executive Bank are moving in the right direction; Kehinde Durosinmi-Etti – who has sugboth banks have increased the number gested that the bank might add to its of their branches significantly within subsidiaries in Gambia, Senegal and the past six months without ● ● ● THE AFRICA REPORT

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●●● any undue pressure on their networks. Such growth will be tested because the unbanked population in Nigeria is approximately twice the size of the banked population. The task at hand is not that daunting but definitely requires a break from the past. Nigeria’s banking sector still reflects a low level of financial intermediation when compared to other countries in Africa. This is illustrated by the low level of Nigeria’s broad money to gross domestic product ratio – which measures the currency outside of the banking system and other elements – which stood at 20% in 2012. The low level of penetration leaves plenty of untapped

potential if banks pursue the following activities. This will require the cooperation of all Nigeria’s commercial banks, the industry regulator and the banking populace. Here are some suggestions to make this happen: 1. Use better technology. That means more working automated teller machines (ATMs). No bank is above reproach, but Skye Bank has consistently headed in the right direction over the years. 2. Show a deep commitment to seeing the customer as the end and not the means to an end.

IN T ER V IE W

VINCENT FOURNIER/J.A.

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Lamido Sanusi GOVERNOR, CENTRAL BANK OF NIGERIA

A legacy of reform TAR: What three reforms do you wish to see outlast you? Well, first of all, the first few years of my term were obviously consumed by trying to save the system from the banking crisis. Going through the process of actually fixing a crisis without depositors losing money and getting the banks to pay for that is a major thing. So one would like to see the agreement that the Nigerian banks over the next 10 years are the ones that pay for the cost of the bailout continue after I’ve gone. The second thing is the whole transparency of monetary policy. We’ve got to a point where people understand that if we move up the MPR [monetary policy rate] by 5%, they will see a movement in the

short-term rates. We’ve improved monetary policy implementation. We have improved how we communicate. People are able to see how we think and how we arrived at decisions, and the markets are able to debate and have intelligent conversations around that. The third major thing is the whole process of financial inclusion – consumer protection, financial literacy, payments and transformation. What about IMF concerns surrounding AMCON? There are three issues we had with the IMF, two of which we agreed upon totally, one where we had a slight disagreement. We had to clean up a few loans that were a risk to the system, and we gave

a deadline and we said beyond that AMCON will not chase any more loans – because they didn’t want to have an open-ended fiscal risk. The second issue we had to document with them was on tenure. They wanted AMCON to repay all debts in those seven years. Now, our models show that it was not possible without placing the healthy banks at risk by significantly increasing their contributions, and we didn’t want to put too much pressure on the banks. The third issue was a sunset clause. The IMF wanted AMCON to be wound down, basically cancelled, after the pay-off loan. I felt it’s a vehicle that has to be available to central bank governors in the event of a crisis. ● Interview by Nicholas Norbrook

3. Establish a unique means of identification for every Nigerian citizen or resident to enable banks to better identify potential and existing customers. Following from this, the sector should develop and utilise an active and well-structured credit-reporting system. 4. Close down AMCON within the next two years and sell the three banks owned by it to competent investors. The latter is in progress, while the former has a big and bold question mark next to it. 5. Practise financial inclusion through the creation of products that serve the interest of the masses and not necessarily the powerful minority. For example, establish savings accounts that are devoid of complicated paperwork and a debt-repayment culture that accommodates irregular or seasonal cash flows. FCMB started a new savings account called Nairawise in May that does not require the holder to have identification documents and can be opened with a deposit of N500. 6. Establish a more proactive and consistent policy direction for banking regulation. The regulator must mean what it says and say what it means. Too many policy reversals have blighted the progress of Nigeria’s banking industry. The CBN gave banks the go-ahead to build off-site ATMs, then disallowed it and asked banks to remove all off-site ATMs in June 2009. The banks bore the cost of this CBN flip-flop. 7. Remove banking sector supervision from the CBN and create a new body created to focus directly on the banks. Managing Nigeria’s economy and currency should be of paramount importance to the CBN. The government should establish a body similar to the Financial Services Authority in the United Kingdom. 8. Limitthecontrolofindividualbanks over the country’s deposit base. No bank should be allowed to possess more than 10% of the country’s deposits. When one bank becomes too important to the system, that bank becomes the system. First Bank, UBA and Zenith Bank have all hovered above or close to this limit. ● *Jude Fejokwu is founder and chief analyst of Thaddeus Investment Advisors & Research in Lagos

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BANKS

AFRICAN EXPANSION

Taking a continental view

Six homegrown banking groups are competing to spread their coverage across Africa’s markets in order to benefit from economies of scale and the first-mover advantage

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hree decades after groups such as Ecobank and Bank of Africa began to establish their footprints across West Africa, the continent is now criss-crossed by a clutch of homegrown banking groups that are focused on pan-African expansion. Based on analysis of 19 countries, Paris-based DEVLHON Consulting forecasts that by 2020 African bank branch networks will grow by 46% in a bear case scenario and 95% in a bull case scenario. Yoann Lhonneur, associate director at DEVLHON, says the rate of expansion will depend on each bank’s ability to collect deposits from their new target populations. “They need to expand their balance sheets, […] not to do their funding on the money market and on the capital market,” he says. Forecasts from DEVLHON suggest that the return on investment from African subsidiaries of pan-African banks averages around 10%, less than the 15% generated by the parent group.

Lhonneur says a lack of critical mass and low regional integration can hinder expansion. “Although you can have a regional integration strategy, by definition it takes years to create value in markets that often are not so big in terms of population and wealth.” ECOBANK’S CLUSTERS

Ecobank Transnational Incorporated (ETI) established its pan-African ambition at its founding in 1985, when more than 1,500 individuals and companies pitched in the capital to set up an African-owned private commercial bank. More than 25 years on, despite an ongoing boardroom battle (see page 7), ETI opened its newest subsidiary in July in South Sudan. ETI organises its subsidiaries into seven clusters. With assets of $9.1bn, Nigeria is regarded as a cluster in its own right, since it accounts for almost half of the group’s $20bn asset base. Performance in the 2012 financial year

Equity Bank Headquarters: Nairobi, Kenya Countries: 5 ASSETS: $2.8bn

was led by the West African Monetary Zone (the six, mainly English-speaking, countries of West Africa that aim to introduce a common currency by 2015), which contributed $115m, the highest profit before tax (PBT) of any cluster. The Ghana subsidiary contributed $101m of this, or 22% of the total group PBT. Subsidiaries in East and Southern Africa are yet to make positive contributions to the group. Ecobank Nigeria’s balance sheet grew following its acquisition last year of Oceanic Bank. Amidst tight economic conditions and challenges in raising capital globally, analysts have suggested that the bank could reallocate capital within the group to subsidiaries that require strengthening. However, a policy directive from Nigeria’s central bank restrains banks from tapping into local capital to shore up foreign subsidiaries. The International Monetary Fund expressed concerns in a report in May about the impact of this policy on cross-border regulatory cooperation. It stated that the policy risks “undermining the goodwill and trust” of regulators in countries where banks are setting up new operations. Meanwhile, Lagos-based United Bank for Africa Group has taken a break from

Attijariwafa Bank

Ecobank CREDIT RATING: Long term AA

(Global Credit Ratings)

Headquarters: Lome, Togo Countries: 34 ASSETS: $20bn

CREDIT RATING: Long term B-

ASSETS: $44bn CREDIT RATING : BB+ (Fitch)

Headquarters: Casablanca, Morocco Countries: 10

(Fitch)

Morocco 2,269 Burkina Faso 41

Kenya 135 South Sudan 4 Uganda 38 Rwanda 9 Tanzania 2

Spreading the African footprint 00 = number of branches Assets taken from Top 200 Banks, see page 88

Cape Senegal Verde 38 7 Gambia Guinea 8 21 Guinea Bissau 6

Mali 39

Niger 21

Tunisia 185

Burkina Faso

Nigeria 610

Sierra L. 12 Liberia 29 Côte d’Ivoire 43 Ghana 79 Togo 27 Benin 32 São Tomé and P. 1 Cameroon 31 Eq. Guinea 1 Gabon 7 Rep. of Congo 13

Senegal Mauritania 3 Mali

Chad Central 14 African Republic 7 South Sudan 1 Uganda 12 DRC 24 Angola 1

Guinea B

Kenya 26 Rwanda 26 Burundi 14 Tanzania 6 Malawi 6 Zambia 7 Zimbabwe 11

Cameroon Rep. of Congo

Gabon Côte d’Ivoire 285 branches in West Africa 82 branches in Central Africa

South Africa 1

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BANKS

its pan-African expansion. It now operates in 19 countries but has not gone into a new market since starting operations in the Republic of Congo and the Democratic Republic of Congo (DRC) in 2011. Nigeria still dominates the group’s performance. The rest of Africa brought in just 20% of its N126bn ($781m) in gross earnings in the first six months of 2013, down from 22% for the same period in 2012. This is despite an increase from 17% to 20% in Africa’s contribution to the group’s N2trn in deposits. In its interim results for 2013, South Africa’s Standard Bank – Africa’s largest bank – said its Africa operations represented 25% of total revenue. The bank recorded 9% growth in personal and business banking on the continent between mid-2012 and mid-2013. Deposits were up 42% and loans to customers up 27%, but there was an increase in the credit impairment charges for both the personal and business banking segment and the corporate and investment banking segment in the rest of Africa. The group’s African operations are still making losses. Overall, the group’s headline earnings were up 11% at R8.2bn ($808m). “We are building good momentum, but we feel we still have a lot to do,” Ben Kruger, the new co-chief executive of Standard Bank told analysts at the group’s interim results presentation in August. “It is clear that apart from our start-up business in Angola and

our small focused operation in DRC, Tanzania this year is the only country [not making a return on equity],” said Kruger. He said Tanzania’s disappointing performance was largely because of poor credit management. EQUITY STICKS TO ITS REGION

Bank of Africa ASSETS: $182bn CREDIT RATING: BBB (S&P)

Headquarters: Bamako, Mali but majority Moroccan owned since 2010 Countries: 15

as Stanbic Bank)

Mali 36 Ghana* 26

Nigeria* 179

THE AFRICA REPORT

Niger 8 Djibouti 3

Malawi* 25 Mozambique 42 Zimbabwe* 18 Mauritius 1 Swaziland 9 Lesotho 17

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Burundi 19 DRC 8

Headquarters: Lagos, Nigeria Countries: 19 (no branch data available)

Tanzania 19 Madagascar 77

ASSETS: $15bn CREDIT RATING: BB+ (Fitch)

Chad Burkina Faso Senegal Benin Guinea Cameroon DRC Uganda

Kenya 26

Côte Togo d’Ivoire 3 28 Ghana 19

Tanzania* 11

South Africa 77

(Global Credit Ratings)

Burkina Faso 28 Uganda 33 Benin 50

DRC* 5 Angola 22 Zambia* 22 Namibia 47 Botswana* 11

United Bank for Africa

ASSETS: $4.9bn CREDIT RATING : Bank of Africa Kenya = A-

Senegal 28

South Uganda* Sudan* 91 1 Kenya* 22

Ismail Douiri, co-chief executive of the bank, tells The Africa Report. “Apart from Senegal and Tunisia, each single country only represents a maximum of 2% of our total balance sheet.” He says Algeria is a “big opportunity that we continue to hope to execute”, but that expansion there is more complicated for political reasons. The bank still has no project to move into Anglophone Africa. “It’s not the matter of growing the footprint or growing the empire, it’s really a matter of generating additional value for shareholders,” explains Douiri.

Equity Bank has struggled to make money from its expansion. The Kenyan bank now operates in four countries outside its Kenyan base, most recently setting up in Rwanda in 2011. Its subsidiaries represent 15% of the group’s revenue and total assets. After announcing plans In a bull case scenario African to expand outside of East bank branch networks could Africa last year, funded by grow by 95% by 2020 a secondary initial public offering, Equity Bank’s chief executive James Mwangi backtracked in Another Moroccan bank, BMCE, has April, saying the group is now focusing used its majority shareholding in Bank on improving profitability of its subsidiof Africa (BOA) to push into Anglophone aries. Citi Research published a report markets since 2010. Bamako-based late last year that showed that Equity BOA operates in 15 African countries, had invested KSh7.9bn ($90m) in its including Kenya, Ghana, Tanzania and subsidiaries since 2008 – 62% of which Uganda. In February, it announced that went to Uganda – but that it had made it had received a licence to start operaa combined pre-tax loss of KSh30m. tions in Togo, with plans to open three Moroccan bank Attijariwafa, which branches in Lomé in 2013. The group’s is now present in nine Francophone biggest bank by total assets in 2012 was African countries and Guinea-Bissau, BOA-Benin, with €942m ($1.25bn). All of has built its pan-African strategy around its African banks made a pre-tax profit diversification. “We don’t put too much except for the operation in the DRC, of our assets in one single country so helping the bank post a €56.2m profit. ● that whenever there is a political crisis it Charles Idem in Lagos only touches 1-2% of our balance sheet,” and Gemma Ware

Standard Bank Headquarters: Johannesburg, South Africa Countries: 18 (*operating

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Sierra Côte Leone d’Ivoire Nigeria

Kenya

Ghana Gabon Liberia Rep. of Congo

Tanzania

Zambia

Mozambique


BANKS

APPOINTMENTS

PROFILE

CHIEF EXECUTIVE, FIRSTRAND

Ghana deal didn’t add up

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hile Absa’s management is popping champagne corks to celebrate its third and finally successful attempt to merge its Africa operations with those of its parent company, Barclays, FirstRand chief executive Sizwe Nxasana is not in celebratory mode. Johannesburg-basedFirstRand’s bid to acquire a controlling stake of Merchant Bank Ghana (MBG) fell flat in July as it did not make “commercial sense”, Nxasana said. Thisisthethirdtimeinthepasttwo years that FirstRand has failed to complete a proposed acquisition. Nxasana’s group has been slow off the mark in its Africa expansion strategy. Its subsidiary FNB Africa contributed 8% to the group’s revenue through its operations in Southern and Eastern Africa in the past financial year. Nxasana had hoped to use the acquisition of MBG as the group’s springboard into West Africa. Now questions are raised as to whether FirstRand has burnt its bridges in Ghana. Analysts say the deal was notatypicalFirstRandtransaction, as the group prefers greenfield operations and small rather than significant acquisitions. In 2011, FirstRand had to walk away from acquiring Sterling Bank in Nigeria due to a disagreement on pricing. However, its investment banking arm, Rand Merchant Bank, opened an office in Lagos in February. FirstRand said the failures of the MBG

deal are different from that of Sterling. The bank announced that “all reasonable endeavours” were takentotryconcludethedeal,butit was unable to reach an agreement “on the commercial principles” of thetransactionwithGhana’sSocial Security and National Insurance Trust (SSNIT), which controls 68% of MBG. The SSNIT is now inviting new suitors. It seems FirstRand will still engage in these new talks, with Ghana remaining a priority country for expansion. Nxasana is set to update shareholders on the group’s expansion in September when it releases its annual results. Shareholders expect him to shed more light on the “commercial principles” that forced him to walk away after almost a year of working on the Ghana deal. Despite the setbacks, there have been no calls for Nxasana’s head, and he remains a darling of the investor community. Over the past year, FirstRand has outperformed its main rivals – Standard Bank, Nedbank and Absa – and some investors have expressed their pleasure that Nxasana has proved that he will not overpay for acquisitions. “It shows that they will not be pressurised to do the wrong deal,” says Chris Steward, head of equity research at Investec Asset Management. ●

Sérigne Dioum In July, Dioum was promoted from MTN’s Côte d’Ivoire chief marketing officer to head of mobile financial services across the continent. Dioum will be responsible for MTN Mobile Money and related mobile financial services.

John Gachora Gachora replaced James Macharia, who has joined President Uhuru Kenyatta’s cabinet, as Group Managing Director for Kenya’s NIC Bank in July. Gachora was formerly head of corporate and investment banking at Barclays Africa.

Thekiso Anthony Lefifi in Johannesburg

Rafik Nayed

THE AFRICA REPORT

Deutsche Bank appointed the former interim CEO of the Libyan Investment Authority as its Vice Chairman for Middle East and North Africa in March. He brings experience in sovereign wealth management and the energy sector. FINANC E SPECIAL

S E P T E M B E R 2 013

MTN; ALL RIGHTS RESERVED; DEUTSCHE BANK

Sizwe Nxasana

S. DAWSON/BLOOMBERG VIA GETTY IMAGES

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At the heart of a regional energy hub

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elying on infrastructure unique in West Africa, Côte d’Ivoire has made energy an economic development priority. The country is updating and diversifying its oil, gas, petroleum product and electricity

activities to reach its goal of joining the emerging countries’ ranks by 2020. Côte d’Ivoire is putting a special emphasis on strengthening its production, transport and distribution capacity in the power sector. By 2015, its infrastructure in this area will be worthy of an emerging nation, capable of fuelling strong, sustainable growth in manufacturing and services and even becoming a key link in West Africa’s future «electricity common market».

ADVERTORIAL

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CÔTE D’IVOIRE


CÔTE D’IVOIRE AT THE HEART OF A REGIONAL ENERGY HUB

“Convincing the most dynamic international operators”

UNIQUE ASSETS IN WEST AFRICA One of the region’s three biggest power grids

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Côte d’Ivoire has had one of West Africa’s three biggest power grids since July 2013, when electricity output capacity rose from1,420 to1,520 megawatts (MW). A concessionary company, the Compagnie Ivoirienne d’Electricité (CIE), ensures the public service of transporting, distributing, importing and exporting power and manages a network of over 4,500km of high-voltage lines that has enabled it to meet domestic demand and, since 1994, export electricity to neighbouring countries. Power production facilities are divided into hydroelectric (604MW) and thermal (916MW) plants. Natural gas extracted off the coast enables power stations to produce clean electricity while developing an African natural resource.

Self-sufficiency for 20 years Côte d’Ivoire’s gas production and hydroelectric plants have enabled it to achieve electricity self-sufficiency. The development of natural gas deposits in 1995 helped to spectacularly boost power production. Most of the gas produced is earmarked for thermal plants. Confirmed gas reserves are 35 billion m3, the equivalent of another 20 years of consumption at the present rate.

ADVERTORIAL

Companies and skills Côte d’Ivoire’s energy sector is driven by leading groups active in the exploration, development and processing of petroleum products (SIR), sales (PETROCI) and electricity (CIE, mentioned above). Together, the three companies total nearly three billion US dollars in turnover (2012 data). The Société ivoirienne de raffinage (Ivorian Refining Company, SIR), Côte d’Ivoire’s biggest company in terms of sales and the third-leading in West Africa, in an industry dominated by Nigerian groups. In addition to bringing together many skills, these companies hire graduates from the École Supérieure Interafricaine d’Electricité (Inter-African Advanced School of Electricity, ESIE) in Bingerville, which joined the University of Abidjan-Cocody in 2001. Nearly 300 engineers from several African countries have graduated from its bilingual French/English electro-mechanical programme since its creation in 1978. Most are now in senior positions.

ENERGY: THE DRIVER OF GROWTH

Infrastructure and energy are at the heart of Côte d’Ivoire’s economic development strategy, which aims for strong, steady growth in order to join the emerging nations’ ranks by 2020. To achieve that goal, in late 2011 the country rolled out an ambitious National Development Plan (NDP) calling for more than $20 billion in investments over the 2012-2015 period. The goal: to gradually strengthen the industrial fabric and service activities so that they play a bigger


CÔTE D’IVOIRE AT THE HEART OF A REGIONAL ENERGY HUB

part in creating wealth and jobs. The dynamics the NDP set in motion enabled it to reach the first year’s goal: Côte d’Ivoire’s economy grew by 9.8% in 2012. Everything indicates that the rate of10% a year will be reached in 2013 and 2014 and that the aim of doubling national revenue by 2020 will be achieved. The energy industry alone accounts for 17% of the NDP’s investments. It is vital for the growth of new activities: first, its development intrinsically contributes to the growth of the secondary sector (energy and manufacturing); second, any new manufacturing or service company must be able to count on a reliable power supply. For Côte d’Ivoire to emerge by 2020, the secondary (manufacturing) and tertiary (services) sectors together must grow by a rate of over 8% a year. The energy target is much closer: the NDP aims to give Côte d’Ivoire basic facilities worthy of an emerging nation by 2015. That is true

In this framework, the government has rolled out sweeping reforms in the highly strategic hydrocarbon sector, not just to correct past mistakes, such as inefficient and opaque technical and financial management, but also to boost production and revenues. Côte d’Ivoire has been a crude oil exporter since 2002 but is struggling to raise output above 70,000 barrels a day. The implementation of a new oil code and transparent, efficient decision-making processes should help the country make the most of its present reserves and potential offshore, where global companies such as Vanco, Lukoil, Tullow and Total have announced very encouraging discoveries. Côte d’Ivoire has set the reasonable goal of producing 300,000 barrels of crude a day by 2020. The two leading groups, SIR and PETROCI, will make the most of that time to implement their production and sales strategy in the region and become a cluster of excellence in Africa.

KEY ECOWAS ELECTRICITY FIGURES Number of member States Population Energy demand coverage rate Production capacity (available potential) Share of the available potential developed

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The goal: 300,000 barrels of crude oil a day

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Côte d’Ivoire’s economic development largely depends on an indispensable increase in power supply, which in turn depends on the growth of the gas sector. The NDP’s goals in terms of infrastructure, industrial growth and satisfaction of the population’s basic needs requires tripling power output, raising service quality and lowering costs. New wells must be drilled in present production fields; exploration activities are being intensified. The building of a new gas pipeline to Ghana to hook up with the one from Nigeria, and of another to northern Côte d’Ivoire to join the networks of North Africa, is planned.

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A MAJOR GAS PARTNER

for infrastructure and transport services (nearly 40% of the NDP’s investments), agriculture (13%), hydrocarbons (8.81%) and energy (8.63%).

“Promoting the training of senior managers and technicians”

15 300 million 50% 26,000MW 16%, or 4,160MW

CÔTE D’IVOIRE’S PRODUCTION CAPACITY Now 1,520MW In 2020 3,150MW


CÔTE D’IVOIRE AT THE HEART OF A REGIONAL ENERGY HUB

ADVERTORIAL

Tripling power production The Ivorian government has earmarked $4.75 billion in the investment plan drafted during the National Energy Seminar (SNE 2012), which took place from 15 to 17 November 2012, for the development of the power industry, of which the private sector accounts for over 70%. Work under way will raise installed power to 3,150MW by 2020 with the entry into service of the Soubré hydroelectric dam (275MW) by 2018. By then, the gas-fired plant of the Compagnie Ivoirienne de Production d’Electricité (Ivorian Power Company, CIPREL) will have raised its production capacity to 543MW (currently 321 MW) and that of Azito to 440MW (presently 300MW). Construction is under way on a new thermal plant in Abatta (Bingerville), near Abidjan, which will add 330MW. Each of these projects is based o n a Pu b l i c - Pr i va te Partnership (PPP) with global players, including Contour Global of the US and C h i n a’s S I N O H Y D R O, financed by that country’s Eximbank.

More reliable, less expensive power at the service of the population and neighbouring countries The additional power will spur Côte d’Ivoire’s growth and meet the increasing needs of neighbouring countries, enabling them to base their energy policy on imports of reliable, less expensive electricity. High-voltage lines already connect it to Ghana, Togo, Benin, Burkina Faso

MEET CÔTE D’IVOIRE’S ECONOMIC OPERATORS Côte d’Ivoire’s development plan offers many investment opportunities in areas with a particularly bright growth outlook. For information: • www.gouv.ci, the Ivorian government’s official portal • www.gcpnd.gouv.ci, site of the National Development Plan’s consultative group, which details all the investment projects under way as part of the NDP • www.cepici.gouv.ci, site of the Centre for the Promotion of Investments in Côte d’Ivoire (CEPICI), which also manages the one-stop window for business creation formalities • www.ici2014.com, the Invest in Côte d’Ivoire Forum (Abidjan, 29 to 31 January), the biggest meeting of African and international companies ever held in West Africa

and Mali. New lines to Guinea are planned via Liberia and Sierra Leone. Côte d’Ivoire is also a driving force in the gradual implementation of the West African Power Pool (WAPP), the future interconnected power grid of the 15-member Economic Community of West African States (ECOWAS). As in other parts of the world, the creation of an «electricity common market» will give the consolidation of regional integration and economic development throughout West Africa a decisive push. ■

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“Widening the PETROCI company’s scope of action and boosting the capacity of the Société ivoirienne de raffinage (Ivorian Refining Company, SIR)”


TSVANGIRAYI MUKWAZHI FOR TAR

BANKS

EcoCash kiosks have been springing up all over Zimbabwe

ZIMBABWE

The telco that ate a bank

The success of Econet’s EcoCash mobile-money platform and its launch of Steward Bank in July have shaken up banking in Zimbabwe

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frican bankers have been wary of mobile-money services since their advent. In Zimbabwe, they are now having to face the reality that a mobile phone company has – in what is a rare move – bought its own bank. Telephone giant Econet Wireless Zimbabwe’s takeover of TN Bank in 2012 and its rebranding as Steward Bank in July has been driven by Econet’s desire to increase subscriptions for its successful EcoCash mobile-money platform, which had 2.1m subscribers in February. There are now some $200m of transactions per month in the EcoCash system less than two years after its launch. Econet is controlled by South Africa-based Econet Wireless International, which is owned by Zimbabwean entrepreneur Strive Masiyiwa. THE AFRICA REPORT

FINANC E SPECIAL

Econet acquired a 45% stake in TN Bank in July 2012 and made a subsequent offer to shareholders in January this year that saw the mobile company increase its shareholding to 98.6%. In February, the bank delisted from the Zimbabwe Stock Exchange just nine months after it had joined the bourse. DID ECONET PAY TOO MUCH?

The deal revolved closely around Tawanda Nyambirai, the founder of TN Bank. He has also been chairman of Econet Wireless Zimbabwe since 2003. Nyambirai agreed to sell his stake in the bank for undisclosed equity in Econet Wireless Global, a subsidiary of Econet Wireless International. Nyambirai resigned from Econet Zimbawe’s board after the sale, citing a potential conflict of S E P T E M B E R 2 013

interest. He still remains chief executive of the bank’s former holding company, TN Holdings, which has changed its name to Lifestyle Holdings. There were concerns at the time from some financial analysts that Econet had paid too much. In a June 2012 note to clients, financial services firm Tetrad Group pointed out that Econet valued TN Bank at $44.4m when it purchased an initial 45% share of the bank for $20m. At that time, the entire TN Holdings group had a market value of $25m. TN Bank had been one of the smaller Zimbabwean banks as it struggled to win market share from big players such as CBZ Bank, Barclays and Standard Chartered. Now market watchers say the bank is expected to dominate the domestic banking landscape with support from cash-rich Econet, which now has more than 8 million subscribers and turned over revenue of $695m during the year to end February 2013. Despite economic turbulence following President Robert Mugabe’s victory in the late July elections (see box), Econet Zimbabwe’s stock was up 17.7% so far this year on the Zimbabwe Stock Exchange. Following Econet’s takeover, Steward Bank’s total equity increased to $75m from $15m after an injection of an additional $50m from the mobile company.

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The bank’s new management told analysts they are confident they can meet the Reserve Bank of Zimbabwe’s new $100m capital requirement threshold, the deadline for which has been pushed back from the end of 2013 to mid-2014. Steward Bank did not respond to repeated requests for interviews from The Africa Report. On the back of the increased capitalisation levels, the bank’s liquidity ratio improved to 25% from 5% and it is now counted amongst the top five highest-capitalised banks in Zimbabwe. This is despite the fact that TN Bank posted a massive $10.4m loss for the 14 months to February 2013. This in-

cluded a $10.3m write down on loans especially among the rural unbanked and marked a significant drop from the majority population,” adds Bloch. $3.6m profit the bank posted for 2011. A July report by mobile phone body Analysts say the bank has good growth the GSM Association on how EcoCash potential. “Steward Bank will grow to be is altering Zimbabwe’s financial landthe biggest bank in Zimbabwe largely scape said declining voice revenue has because its parent company has a huge capital In a few years, eight out base,” says independent of 10 Zimbabweans will be economist Eric Bloch. “In a few years, eight out of 10 banking with Steward Bank people will be banking with the bank. But the officials should not played a critical part in the company’s relax on its product delivery,” he exdiversification strategy. “Econet’s finanplains. “Its mobile banking platform cial services push was driven not only will also spur the growth, considering by a desire to achieve a social impact, the high penetration of mobile phones, but also by an equally strong business need to grow new revenue streams,” the report says. It points to a decline in average revenue per user (ARPU) across the sector from $15.50 to $14.95 between the last quarter of 2011 and the last quarter of 2012. WITH PRESIDENT a hard line on the in deposits. Barclays Voice revenue is likely to drop furRobert Mugabe’s and transfer of equity in and Standard ther, with Econet waging a tariff war Zimbabwe African mining companies, as Chartered have in August, dropping its cross-network National Union-Patriotic in the case of Zimplats. submitted their own voice call prices from $0.25 cents per Front’s victories in the But other officials say proposals to the minute to $0.10 per minute. It has also 31 July elections the government will government. introduced discounts of up to 90% for endorsed by Southern be more pragmatic Former finance Econet-to-Econet calls. Other mobile African leaders and the towards banks and minister Tendai Biti, operators, such as Telcel, have introAfrican Union, the manufacturing who is also the duced low-priced bundles.

Mixed signals on ZANU-PF’s born-again banking

most immediate questions are economic ones. Specifically, companies want to know whether the new government will deliver on its pledges to indigenise the economy and to reintroduce the Zimbabwe dollar. There was a post-election panic: shares on the Harare Stock Exchange lost 11% of their value the day after Mugabe’s victory was announced. Indigenisation minister Saviour Kasukuwere has taken

companies, seeing them as critical for any economic revival. Foreign banks targeted for indigenisation include Togo-based Ecobank, Britain’s Standard Chartered and Barclays, and South Africa’s Stanbic and Nedbank affiliate MBCA Bank. Together they account for more than half of Zimbabwe’s market and hold deposits of some $1.3bn. Locally owned banks have some $3bn

secretary-general of the opposition Movement for Democratic Change, had assured banks that he would work with the Reserve Bank of Zimbabwe (RBZ) to protect their interests. That is now open to question: Biti left office after the MDC’s defeat and Gideon Gono may be pushed out of the RBZ when his term as governor expires at the end of this year. ● Thabo Bhebhe and Patrick Smith

SOURCE: ZIMBABWE STOCK EXCHANGE

Percentage stock price change on Zimbabwe Stock Exchange 100%

ABC Holdings Limited CBZ Holdings Limited NMBZ Holdings Limited

Barclays Bank of Zimbabwe Limited FBC Holdings Limited ZB Financial Holdings Limited

50% 0% -50% Feb

Mar

Apr

May

Jun

Jul

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POTENTIAL LENDING

The first few months of Steward Bank’s operations have already brought a series of management reshuffles. Kwanele Ngwenya, a South African who was formerly head of the commercial segment at FNB Botswana, joined the bank as chief executive in February. Speaking at the official launch of the bank, Ngwenya said his team was “committed to transform Steward Bank into an innovative, stable and dependable institution”. Ben Muchina, former head of corporate banking at Standard Chartered Botswana, is Steward Bank’s head of segments. The dominance of EcoCash – 31% of Zimbabwe’s adult population are subscribers–means thatmostofZimbabwe’s otherbankswillhavetomakeagreements with Steward Bank. With EcoCash money largely staying inside the system, the new bank’s managers will be thinking hard about how they are going to use that to their advantage, says Ruvimbo Dingani, banking analyst at Invictus Securities in Harare. “They’re able to pool those deposits. It will be interesting to see where they want to take that, if they’re going to be doing a lot more lending.” She says

THE AFRICA REPORT

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BANKS

Rebranded as Steward Bank, TN Bank is powering ahead thanks to Econet’s turbo boost

between bank accounts and EcoCash wallets is $145 per user per month. That is a high level for the Zimbabwean economy, which has been cash-strapped since the government stopped printing the Zimbabwe dollar in 2009.

TSVANGIRAYI MUKWAZHI FOR TAR

ECOCASH IN THE LEAD

THE AFRICA REPORT

FINANC E SPECIAL

Econet Zimbabwe ARPU ($) 10.33 Feb-12

8.44 Feb-13

29.4

44.6

Feb-12

Feb-13

balances held in banks. However, the banks have kept largely silent on Econet’s takeover of TN Bank. Dingani says that although all of Zimbabwe’s banks have begun targeting the unbanked population, Steward Bank could have the first-mover advantage. “They just really are a step ahead from anyoneelse.Bythetimeeveryonecatches up they will have secured their market share,” she predicts. Early on, EcoCash began linking its mobile wallet to traditional bank accounts and had live integrations with five banks in July. The average transfer S E P T E M B E R 2 013

SOURCE: ECONET

Data Revenue Growth ($m) 52 %

Steward Bank could benefit from an unwillingness to lend from some of the bigger banks, such as Barclays. The growth of EcoCash is in sync with the increase in mobile- and internetbased transactions in Zimbabwe. They surpassedcardpaymentsforthefirsttime after registering 28.3% growth in May 2013, according to the Reserve Bank of Zimbabwe (RBZ). Its May 2013 monthly economic review reported that the value of mobile- and internet-based transactions jumped from $283.6m in April to $364m in May 2013, while the total value of card-based transactions rose by only 1.3% from $328.2m to $332.6m for the same period. Zimbabwe’s other banks had initially opposed EcoCash, pushing for it to comply with the RBZ’s minimum capital requirement of $100m. The RBZ responded that mobile-money services are merely a payment system, which does not amount to deposit taking. It said that mobile transfers should therefore operate on a ‘credit push principle’, where all e-money is backed by pre-funded

Standalone companies and traditional banks have created mobile-money services, but none have been as successful asEcoCash.CABS,ownedbyOldMutual, has its Textacash account, which allows for transactions via bank cards and mobile phones. Meanwhile, Afrasia Kingdom Bank offers the CellCard, which is a payment platform that enables transactions via the internet, on mobile phones and through point-of-sale devices. In January, before the rebranding, TN Bank had announced plans to finance smartphones and tablets for Econet customers, adding that the bank would start processing small loan applications via smartphone. Executives told analysts that the ability to offer smartphone finance was one reason for its takeover of TN Bank. This could drive more data usage on Econet’s network, a growing income source for the telecom company (see graph). It is likely the bank may also offer new consumer finance products as it rolls out its new strategy and tries to find a stronger market niche. The bank’s management will also have to make strategic decisions about its branch network, as 23 out of the bank’s 24 branches are open alongside furniture outlets owned by Lifestyle Holdings. Gershom Mandivanda, an economic analyst with Ariston Private Investment Venture in Harare, says that although Steward Bank “has shaken the banking sector”, the bank should guard against complacency and must innovate to increase its market share. “[There’s] no doubt that Steward Bank is now a force to reckon with. Its present client base is strong, but that should not give room for laxity.” Mandivanda says the new entrant may stimulate activity in the banking sector: “Customers are drifting from the other banks to Steward Bank. Competitors might spring a surprise and launch products that are more appealing than what is offered by Steward Bank”. ● Thabo Bhebhe in Bulawayo and Gemma Ware

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Š 2011 - AfDB - Design, External Relations and Communication Unit/YAL

For more information:

www.afdb.org/climatechange


A Green Fund for equitable growth in Africa

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he creation of a Green Fund for Africa that addresses the continent’s equitable growth needs is an urgent necessity. Housed at the African Development Bank, this fund would provide for the development of a low carbon emission economy, making Africa a pivotal partner in the global fight against the effects of climate change.

www.afdb.org


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CAPITAL MARKETS STOCK MARKETS

The hunt for li Stock exchange managers, tech companies and brokers are all looking for ways to increase liquidity and get more companies to list in African markets By Warren Dick in Johannesburg and Gemma Ware

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frican stock exchange indexes are continuing to grow but at the same time are having trouble attracting a critical mass of trade volume. Despite gloomy news on growth for the South African economy, the Johannesburg Stock Exchange (JSE) hit record highs in mid-August. The FTSE ASEA Pan Africa Index (excluding South Africa) recorded 16.7% year-to-date returns at the end of July, compared to a loss of 8.3% for FTSE’s secondary emer-

JSE, traded more shares in June than the South African exchange. Poor liquidity remains one of the biggest challenges facing the continent’s fledgling capital markets. Trade volumes onAfricanexchangesaretypicallydominatedbyafewlargecompanies.InZambia, for example, three of the exchange’s 21 listed companies accounted for 82% of the 92.5m shares traded in the first three months of 2013. As a result, companies are looking at other markets to raise capital. Zambian agriculture firm Zambeef listed on London’s Alternative Investment Market in African companies are finding 2011, raising $55m. Nigerian it easier to raise capital billionaire Aliko Dangote is in London or Toronto considering an initial public offering (IPO) for Dangote ging index, which includes China, India Cement – already listed on the Nigerian and Russia. Over the past three years, the Stock Exchange – in London. AfricanAfrica index – which represents a basket focused mining explorers often go in of244stocksfrommembersoftheAfrican search of capital in Toronto and London. Securities Exchanges Association (ASEA) and has a net market value of $73.5bn LONG WAY TO GO – outperformed the emerging markets According to research by Ghanaian finindex even more (see graph). ancial group Databank, the best perBut African bourses are still dwarfed forming African stock market index in in size by those of the rest of the world. US dollar terms so far this year has been The market capitalisation of all Africa’s the Ghana Stock Exchange (GSE), up stock exchanges stood at $1.4trn in June, 55.7% so far in 2013 by mid-August. But smaller than the $1.9trn of the Toronto Ghanaian stockbrokers still argue that Stock Exchange and just an eleventh of the market has a long way to go. David the size of the New York Stock Exchange’s Awuah-Darko, chief executive of finan$16.5trn (see graph). Even on the JSE – cial services firm IC Securities, says the by far Africa’s largest exchange with a GSE is like a glorified over-the-counter market cap of $868bn – trade volumes market. “It’s where most developed marfall short. Borsa Istanbul, which has a kets were about 100 years ago,” he says. “The biggest issue is that you still ● ● ● smaller market capitalisation than the

TOP 15 LARGEST STOCK EXCHANGES IN AFRICA BY MARKET CAPITALISATION. SOURCE: AFRICAN SECURITIES EXCHANGES ASSOCIATION JUNE 2013. PHOTO12/ALAMY

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43

quidity Namibia

$123.7bn

Casablanca

Botswana

$49.9bn

$48.3bn

JOHANNESBURG

$868.1bn Market capitalisation

Nairobi Cairo

$46.2bn

$18.8 bn

Lusaka

$9.8 bn

Lagos

$107.8bn $46.2bn

Tunisia

$8.7bn •

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$10.2 bn

Dar es Salaam

$8.8 bn

Uganda Accra

THE AFRICA REPORT

BRVM (Abidjan)

$7.3 bn

Harare

$5.5 bn

Mauritius

$6.1bn


CAPITAL MARKETS

The Ghana Stock Exchange has been the best-performing index in 2013, but with no new IPOs

don’t have a developed local institutional pool of capital, and you don’t have multiple managers of capital that are benchmarked against each other or against an index.” Awuah-Darko says the situation is improving – particularly after new pension reforms started to contribute to the growth of new fund managers (see TAR 48, March 2013) – but the process is a long one. Although Irish oil company Tullow listed on the exchange in 2011, it was a dual listing and has seen little trading. Apart from Tullow, there have been no IPOs since 2009. In attempting to improve liquidity, the JSE has identified international mining companies as targets for dual listings. Patrycja Kula, a businessdevelopment officer at the JSE, says the bourse has much to offer resource companies. “Mining is part of this country’s and the JSE’s DNA. South African investors have a deep understanding of resource markets. This, combined with our world-class trading and settlement systems, secure legal title, excellent regulatory and governance framework and deep pools of capital, means we have plenty to offer companies looking to raise capital for projects of this nature.” Leaving exploration companies to Toronto and London, Kula expects that the JSE’s focus will be in financing companies that have projects that are past the bankable feasibility stage, with a particular emphasis on getting mining companies in these jurisdictions to dual list on the exchange to raise capital. South Africa’s foreign exchange control regime (excon) has created problems in the past and may have led the JSE’s previous initiatives – like the Africa Board – to become non-starters. Excon rules make it hard for listed companies to move funds

JONATHAN ERNST/THE WORLD BANK

●●●

indexes for small and medium-sized enterprises (SMEs). The Nairobi Securities Exchange (NSE) launched its Growth Enterprise Market Segment (GEMS) in January, in addition to its Alternative Investment Segment, with smaller entry requirements. Home Afrika was the first firm to list on GEMS in July (see page 62). Ghana is also gearing up to launch the Ghana Alternative Market (GAX), although the start date has been delayed several times. Both markets are trying to recreate the success of Tunisia’s SMEfocused market. Its Marché Alternatif has hosted four IPOs so far in 2013, doubling the number of companies listed. The new firms include dairy company Land’Or and textile firm New Body Line. Brokers also are pushing their own initiatives to improve liquidity in African markets. South Africa-based Imara S.P. Reid has built a system that allows retail investors to invest in any African market through one account. “We now

outside of the country and previously prevented them from being included in indices like the JSE All Share Index. The authorities relaxed excon rules further in February, meaning companies with dual listings can be included in the indices and as much as R750m ($75m) from a subsidiary can be taken out of the country and invested Tunisia’s SME market has on the continent. In another encouraged other exchanges effort to boost IPOs, the JSE to set up alternative indexes introduced new rules in April allowing the listing of special purpose acquisition companies (SPACs) have custody in all of these markets, so or ‘cash shells’, companies that naturalwe have the vehicle to hold the shares resource explorers with no assets use to on their account, which prevents the raise cash. The companies will need to need for a client to open an account acquire an asset within two years of listin each country,” says Simon Reid, the ing. So far, no SPACs have been launched. company’s head of institutional trading. In an effort to create a pipeline of new The accounts are held with custodial companies, several exchanges have banks in each of the 15 African markets launched or are planning alternative and investors can have a single currency account with the settlement also managed by Imara. 3-YEAR PERFORMANCE INDEX – TOTAL RETURNS

125 120 115 110 105 100 95 90 85 80

JUL 2010 JAN 2011 JUL 2011 JAN 2012 JUL 2012 JAN 2013 JUL 2013 FTSE ASEA Pan Africa Index ex South Africa FTSE Secondary Emerging FTSE Frontier 50

SMALL FRY ON THE GLOBAL STAGE ($trn – June 2013)

16.5

2.7

1.9

1.4

New York Stock Exchange

Hong Kong Stock Exchange

Toronto Stock Exchange

Total African Exchange

0.3 Istanbul Stock Exchange

SOURCE: NYSE, ISTANBUL EXCHANGE, WORLD FEDERATION OF EXCHANGES

44

SHORT SELLING

But what about the exchanges themselves? “Nigeria is being the most proactive at the moment, they have dropped a lot of the taxes relating to trading,” says Reid. “Obviously the most effective way is to increase the participation rate, which will lower costs. So pension fund reform like that being considered in a few of the countries will improve this, as will allowing pension funds to invest in risky assets that include equities,” says Reid. Kenya is in the process of demutualising its exchanges. Both Kenya and Nigeria are considering allowing short selling, which would also ● ● ●

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46

CAPITAL MARKETS

improve liquidity. Reporting and disclosure are also constantly improving, which will aid trading activity. The Stock Exchange of Mauritius (SEM) has also made moves to increase liquidity. In 2008, the SEM introduced turn-around trading – allowing investors to buy and sell a stock more than once in a trading session. “We’re seriously looking at reducing our trading fees to make them internationally competitive,” says chief executive Sunil Benimadhu (see page 69 for more on Mauritius). Some exchanges are trying mobile technologies to reach out to retail ●●●

customers. Kenyan firm AIB Capital launched a mobile share-trading platform in mid-2012 to allow users to buy and sell shares on the NSE. AIB charges a KSh30 ($0.34) flat fee per order. Takeup has not been as quick as the firm hoped, with 5,000 active users in August, according to Peter Chege, information technology manager at AIB Capital. He says that customers place an average of around 20 orders per day. “We are looking to integrate the system with M-PESA [mobile banking system], so you don’t need to pay and buy separately,” says Chege.

More integration is also on the cards. EastAfricaisleadingwithplanstocreatea regional securities exchange with a single platform. But the director of strategy at the JSE, Siobhan Cleary, says that while the integration of exchanges would certainly assist in enhancing liquidity, in practice it is very difficult to achieve: “Exchanges are seen as national assets, soforexchangestointegratemeanscountries would have to give up some degree of control. We have chosen instead to focus on how we can run exchanges in a cost-effective way for the economy the exchange is meant to serve.” ●

HANNIBAL Taming the funds

N

ew rules in Europe to rein in the excesses of private equity and hedge fund managers could soon cause extra headaches for Africa-based fund managers. The Alternative Investment Fund Managers Directive (AIFMD), which came into force on 22 July, introduces new obligations for traditionally secretive private equity and hedge fund managers to publish annual reports with regulators in Europe. The rules apply to funds based in the European Union (EU) and funds from abroad that seek to raise money from European investors. Confusion remains on how the new rules will be applied, and fund managers have bemoaned the cost of compliance. Non-EU funds are at a slight disadvantage because a new ‘passport’ designed to make cross-border fundraising easier will not be available for non-EU-based funds until at least 2015. Many African managers have fundraised from development finance institutions and other institutional investors across Europe. One Africa-based fund manager told Hannibal that he was planning to set up a feeder fund in Luxembourg, the main home for such vehicles, in order to limit the compliance paperwork related to the directive. The feeder fund – compliant with the AIFMD rules – would do the fundraising for the master fund, which is based in Africa. There will also a compliance burden for African regulators, which will need to sign

cooperation agreements with European governments if the funds domiciled in their countries are to continue to raise money in Europe. The African Venture Capital Association (AVCA) warned during consultations on the directive that this could be a sticking point if such agreements lead to delays. In a briefing note to its members, AVCA also warned that after 2015 African fund managers will have to abide by new restrictions on funds delegating risk and portfolio management to third parties. What is clear is that AIFMD will shine a spotlight on the European fund industry in an unparalleled way. Accountancy firms are warning that anyone in the alternative investment value chain – promoting, advising or managing funds – will have to rethink their operational models. The emphasis behind these rules was to reduce asset stripping, where private equity funds invest in a company in order to make a quick profit. Africa-based private equity funds, however, are far removed from the heady leverage of their European and American peers, acting for the most part like traditional venture capitalists. Sub-Saharan African funds raised $1.4bn in 2012, but had only brought in $100m in the first half of 2013, in what is an increasingly difficult fundraising environment. There could be a silver lining for African funds from the European regulations. If managers find that European fundraising gets even harder, it may push them to persuade more domestic pension funds and institutional investors to invest. ●

The new EU rules are to reduce asset stripping, which is far less prevalent with Africabased funds

THE AFRICA REPORT

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A multi-profession group, a pan African presence Created in 1995, SAHAM GROUP, a key player in the insurance, offshoring, health and property sectors in Morocco, is actively pursuing its international expansion strategy.

• Insurance

• Real estate

The group has set up in Lebanon and in 17 African countries, rising in three years to the top rank of the continent’s insurance companies, outside of South Africa, with the brands CNIA SAADA, COLINA and LIA Insurance. Its subsidiary ISAAF Assistance, leader of assistance in Morocco, covers a network of 600 intervention sites.

Drawing on its extensive experience in property promotion in Morocco, SAHAM GROUP has bought up the Ivorian company BATIM AFRIQUE, with the ambition to cover the region.

• Offshoring Pioneer in offshoring professions, SAHAM GROUP manages 8 contact centres and offers technical assistance, client relations services, telemarketing, back office and directory services to its clients.

• Health The acquisition of a pharmaceutical industry in 2011 has allowed SAHAM GROUP to launch its health division. The objective: to produce and distribute drugs – in particular generics – in Morocco as well as in the rest of Africa.

• Strategic partnerships To build its expertise and consolidate its international growth, SAHAM GROUP is relying on strategic partners, capital intensive as well as commercial, with first rate operators such as Bertelsmann, Mondial Assistance, CEGEDIM, Sanam Holding, the International Finance Corporation (IFC) and Abraaj Capital.

SAHAM GROUP in figures

• A turnover of 900 million dollars in 2012 • 5 900 collaborators • 34 branches in 19 countries

Seeking synergy between branches and concerned about making skilled jobs sustainable, SAHAM GROUP is investing in quality, innovation and training to meet its clients’ needs and to contribute to the economic and social development of the continent. www.sahamgroup.com


CAPITAL MARKETS

PROFILE

Rahul Dhir President, Delonex Energy

We need technology, creativity and cash

Delonex Energy, backed by private equity firms and the International Finance Corporation, plans to make an impact in the East and Central African oil and gas sectors

E

ast Africa’s oil and gas boom is still in the gestational phase, but Rahul Dhir’s new exploration and production venture – Delonex Energy – is entering an increasingly crowded marketplace. This is also a time when the economies of South and East Asia – the main markets for East Africa’s energy exports – show signs of slowing down. Undaunted, some of the world’s biggest oil and gas companies see thehugepotentialoftheregionand are throwing money at exploration and production plans. That makes it tougher for smaller independent companiessuchasDelonextosteal a march on their rivals. But Dhir is convinced that there is still more than enough work to go around. He has already convinced New York-based private equity firm Warburg Pincus, which is backing Delonex with up to $600m of investment capital and commercial expertise. After a low-profile launch in June, Dhir and his team are pushing ahead, establishing a regionaloperationsbaseinNairobi, a financial and administrative office in Mumbai and a corporate headquarters in London.

MARK CHILVERS FOR TAR

48

In August, Delonex announced that the World Bank’s International Finance Corporation is taking a 10%stakeinthecompanyfor$60m. That will help tremendously as financiers grow more cautious about returns from energy projects. More oil engineer than financial engineer – although he has postgraduate degrees in both disciplines – Dhir often projects page after page of regional maps and geological data onto the screen in theboardroomofWarburgPincus’s London office. Dhir’s first focus is

Dhir’s experience in Rajasthan should prove instructive in East and Central Africa East Africa’s Rift Valley. East Africa’s rift system is one of the most prospective oil and gas regions in the world. This new exploration zone stretches from the Red Sea through Ethiopia,Kenya,Uganda,Tanzania and down to Mozambique. ASIAN PIONEER

The company’s second focus will be the Central African rift, running from South Sudan across to Chad.Itisaregionwithsomeofthe toughestpoliticalanddevelopment problems in the world, but that has not held back European and Asian oil companies from making massive investments there. Africa is new territory for Dhir, as he is a veteran of pioneer oil proTHE AFRICA REPORT

jects in Asia. His biggest success to date was running Cairn India in hydrocarbon-rich Rajasthan State. Dhir led the company from a start-up to a $2bn initial public offering in 2006, building it up into a company with a market capitalisation of almost $13bn. That was the training ground for Delonex Energy. Its director for exploration, David Ginger, also playedaleadingroleinCairnIndia. Dhirdrawssomeparallelsbetween Rajasthan and East Africa: “There is the geology and our need to be innovative in technological terms, but also in how we operate in the community.” There are other more delicate commonalities between the two regions, such as governance, corruption and environmental despoliation. Again, Dhir reckons the Rajasthan experience will prove instructive. “It is the government that decides how to use the hydrocarbons. In India oil and gas have produced revenues and catalysed development.” ArgumentsinAfrica about the balance between using oil and gas to generate export revenueorusingitfordomesticpower and petrochemical needs are playing out in India too, says Dhir. With an eye on the successes of independent companies such as Ireland’s Tullow and the United States’s Kosmos Energy in West Africa, Dhir argues that Delonex will have some critical advantages: “We are small and we can execute FINANC E SPECIAL

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RESOURCE FINANCING

projects very quickly. And because of good management systems, we will be highly efficient in terms of capital allocation.” Dhir ’s explanations are peppered with words such as “innovation” and “individual creativity”. “Delonex aims to become a world-class exploration and production company,” he enthuses. “We can do that with good science and operating practice.” There is, however, the matter of competition from some of the world’s largest oil companies. China National Offshore Oil Corporation and France’s Total are trying to move ahead with multibillion-dollar oil field, refinery and pipelinedevelopmentsinUganda’s Bunyoro region. Further south, Italy’s Eni, Norway’s Statoil and Britain’s BP are targeting the gas reserves in the deep waters off TanzaniaandMozambique.Again, these companies plan to invest billions to produce gas, liquefy it and export it across the Indian Ocean.

Explorers left looking for cash Concerns about metal prices and the end of quantitative easing caused a slump in mining financing in the second quarter of 2013

In both areas, much of the initial work has been done by smaller companies, such as Tullow and Heritage in Uganda. But there are plenty of problems ahead. The long discussions over how much of Uganda’s oil should be refined locally mean that Kenya, with its recent finds in the Lokichar Basin, could produce oil commercially before its neighbour. In Tanzania andMozambique,themultibilliondollar gas investment bonanza is already generating political tensions over accountability and how local communities will benefit. Warburg Pincus’s other African oilinvestment–inKosmosEnergy– has set a high bar despite some blips over its failed attempt to sell assets in Ghana to ExxonMobil three years ago. After its launch in 2003, Kosmos now estimates that it is worth well over $5bn with its stakes in Ghana’s two biggest oil fields. To repeat that kind of success in East Africa, Delonex Energy needs good technology and an acute political sense, as well as thatindividualcreativity thatRahul Dhir values so highly. ●

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DEBT MARKETS STILL OPEN

A period of quantitative easing (QE) in the US helped to push up the gold price, as the Federal Reserve’s buying of $85bn worth of bonds a month kept investors fed with cheap money. But uncertainty about when the the US central bank will cut back on QE has begun putting downward pressure on the gold price, which was trading at around $1,290 per ounce on the spot market in mid-August, down from more than $1,690 per ounce in January 2013. Igor Klimanov, director for Africa at Nordgold, a Russian firm that listed a 15% stake on the London Stock Exchange last year and operates gold mines in Burkina Faso and Guinea, says the financing situation remains more acute for junior miners. “For established producers with cash flows, debt markets are still open,” he says. “It’s different if you are a junior company that needs to raise capital to develop something and there is no proof that you will spend your money well.” ● Gemma Ware

Nordgold opened its Bissa gold mine in January

Patrick Smith •

years between May 2011 and May 2013 for development funding, they raised just $829m to finance exploration. Gold dominated the exploration funding, representing 57% of the total, compared to 8% for copper, 7% for coal and 6% for iron ore.

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NORDGOLD

I

t is a difficult time to look for finance in the mining sector. Data released in early August by Stockholm-based analysts IntierraRMG showed that global miners received only $2.3bn in finance between March and June 2013, down 56% from the $5.2bn raised between January and June. The report pointed to a severe drought in capital markets and high levels of debt in the mining industry. IntierraRMG said the biggest companies were hit hardest, with the 555 companies on its IntierraLive Database raising just $1.4bn in the three months to June, compared to $4.1bn for the first three months of 2013. Some large-scale miners, especially those based in South Africa where there is uncertainty over cost cutting and wage negotiations, are coming under sustained pressure. In August, ratings agency Moody’s downgraded Anglo American from Baa1 to Baa2 in a move senior analyst Gianmarco Migliavacca said reflected expectations that the company would “generate lower operational cash flow and requirelarger-than-previously-anticipated debt funding” over the next 12-18 months, partly because of the restructuring of its South African platinum division. In another report focused on mine finance in Africa, IntierraRMG found that while companies raised $4.8bn in the two

ACCOUNTABILITY

THE AFRICA REPORT

49


CAPITAL MARKETS

Suscilisl etumsan etueraesto eu feu feugue vent adiam, consequi bla feugiate. Ver ing

PRIVATE EQUIT Y

US funds take to Africa The Carlyle Group, Blackstone and KKR are turning their gazes to opportunities in African markets, especially in the fields of consumer goods, energy and agriculture

S

ome of the biggest names in the private equity business in the United States are leading the way in sub-Saharan African investments, followed by the managers of university endowments and other investment funds. There are already many mutual funds and exchange traded funds that target listed investments, but it is the private equity funds that seek out unlisted companies or listed companies that could be delisted. The US interest is mirrored elsewhere and Brazil’s BTG Pactual launched a $1bn private equity fund for Africa in May of this year. A survey by the Emerging Markets Private Equity Association of limited partners – the institutional investors who invest in private equity firms – found that they currently invest 9% of the money allocated to emerging markets into sub-Saharan Africa. For the first time, the region was the most attract-

ive destination for investment for the next 12 months, up from fifth in 2012 and eighth in 2010. Last November, private equity giant The Carlyle Group teamed up with the Pembani Remgro Infrastructure Fund and Standard Chartered Bank to pay $210m for a minority stake in the Tanzania-based agribusiness Export Trading Group (ETG). Present in 30 countries, ETG is a farming enterprise and trader of agricultural commodities

In May of this year, John Coors, greatgrandson of the founder of the brewing dynasty, said he would raise $300m from wealthy American and African families to invest in a private equity fund targeting fast-growing sub-Saharan African economies. He plans to invest the first $50-100m by the end of this year. The second-largest African private equity deal so far this year was New York-based Warburg Pincus’s commitment to invest up to $600m in East Africa-focused Delonex Energy (see page 48). LOOKING FOR TALENT

The largest players can afford to recruit established experts. Carlyle, which launched its $500m fund in 2012, opened offices in Lagos and Johannesburg and set up a team led by Africa private equity specialists Sub-Saharan Africa now tops Daniel Jordaan (formerly of the list of emerging markets South Africa-based Ethos), for investment in the next year Genevieve Sangudi (a Tanzanian private equity spesuch as coffee, maize, sugar and nuts. cialist who has been based in Nigeria Carlyle has indicated it has a steady since 2008) and Marlon Chigwende pipeline of deals but is particularly fo(formerly of Standard Chartered). Their cused on consumer goods, agriculture fundraising is finding success both and telecommunications. among development finance ● ● ● THE AFRICA REPORT

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JONATHAN ERNST/REUTERS

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OCTOBER 8-11, 2013 CHICAGO, IL

The Corporate Council on Africa’s 9th Biennial U.S.-Africa Business Summit will take place October 8-11, 2013 at the McCormick Place Convention Center in Chicago, Illinois. Since 1997, CCA’s U.S.-Africa Business Summit has been regarded as an essential conference for anyone looking to do business in Africa.

REGISTER NOW TO ATTEND THIS ONE-OF-A-KIND EVENT WHERE YOU CAN: ▲

Obtain information on the latest trade and investment opportunities in Africa’s most promising sectors including agribusiness, energy, health, infrastructure, capacity building, security, ICT and finance

Network with as many as 1,500 key African and U.S. private sector and government representatives

Learn from a wide-array of industry-specific and country-focused informational sessions

Explore new business opportunities by identifying specific growth areas and projects

Discover the latest financing options

Meet potential business partners

Interact with exhibitors representing companies on the cutting-edge of investment in Africa

Close new business deals

VISIT WWW.AFRICACNCL.ORG FOR MORE INFORMATION AND TO REGISTER.


CAPITAL MARKETS

● ● ● institutions – the African Development Bank put in $50m of equity – as well as high-net-worth Africans. Some United States-based private equity firms have a longer track record in Africa. Washington DC-based Emerging Capital Partners has the longest period of activity for a US-based company and is the only one of its cohort to be exclusively focused on Africa. Since 2000, it has raised more than $2bn and made 50 investments across 40 African countries. It announced plans to open an office in Kenya and invested in local coffee house chain Nairobi Java House in May 2012.

a capital injection of $26m for Jumia, a company operating in Egypt, Morocco and Nigeria that plans to become Africa’s answer to bookseller-turnedgeneral-retailer Amazon. In late 2012, Summit arranged another $26m deal for an equity stake in South Africa-based clothing website Zando. HEALTHY EXITS

ALL RIGHTS RESERVED

52

RETENTION STRATEGY

Boston-based Bain Capital completed the continent’s largest private equity deal in April 2007 when it purchased South Africa’s retailer Edcon for $3.5bn. Bain sold Edcon’s financial services arm to Absa for $1.2bn in 2012. A private equity company would normally have exited an investment like this already, but Edcon had $1.9bn in debt in July 2013 and Bain had no immediate plans for an initial public offering (IPO). Edcon chief executive Jürgen Schreiber also said that an IPO would not lead Bain to divest all of its shareholding but merely serve to dilute its stake. Bain does not have an office devoted to African investments, unlike some of its competitors. Through a portfolio company, Kohlberg Kravis Roberts (KKR) increased its stake in Egypt’s United Company of Pharmacists to 60% in 2010. KKR has also been jockeying for talent and hired Kayode Akinola as its director of private equity in October 2012. Akinola was a partner at London-based and Africafocused private equity firm Helios Investment Partners. The hiring of Akinola

45%

increase

in PE investment in Africa

...to $850m in first half of 2013

… up from $587m in first half of 2012 SOURCE: EMERGING MARKETS PRIVATE EQUITY ASSOCIATION

Brewing heir John Coors and his wife Sharna plan to raise $300m from wealthy families

The upsurge in American interest in Africa also reflects factors in the international investment scene. “Investors look for the next big thing,” says Michelle Essomé, chief executive of the African Venture Capital Association (AVCA). She says this reflects a “natural maturation”, as private equity exits prove good returns. Research published by AVCA and Ernst & Young in May found that 62 African exits by private equity firms between 2007 and 2012 generated returns almost double that of the Johannesburg Stock Exchange. At the same time, the continent is no longer off the map for those who manage pension funds and university endowments, some of which have assets running into billions of dollars and a readiness to look for long-term growth opportunities. Some university endowment funds are already investing south of the Sahara. The economic slowdown in Europe and the United States has left them looking at relatively poor returns on conventional blue-chip stocks. This is now tempting them to look for markets that can offer higher returns.

is the main plank of an Africa strategy that the company crafted in 2012. Other firms are implementing changes in the way that they do business. As part of a global trend, more private equity investors are reducing their buyout kitties and holding onto more assets for longer periods. In October 2012, Blackstone Group and its partners commissioned the 250MW Bujagali Dam in Uganda. Blackstone, through Sithe Global, contributed a $116m equity investment to the $900m project. In late 2012, Blackstone said it would invest up to $3bn in African energy projects, which would include the Ruzizi Dam in Private equity investors are Rwanda and the Ruhudji reducing their buyout kitties Dam in Tanzania. and holding assets for longer There are new ventures based in the US and focused on Africa. Bill Silva and David Northwestern University’s endowJeromin set up Golden Mean Capital ment has invested in Nigeria and Kenya. in 2010 as a venture capital firm with The University of Texas Management the immediate goal of raising $50m. Its Company has made investments in the aim is to make both financial and social private equity funds managed by Helios profits, with an emphasis on agriculInvestment Partners and Actis Capital. ture projects. Its first investment was The University of Wisconsin has also in Cheetah Palm Oil, a company set up committed funds to Actis. by Ghanaian economist George Ayittey. They may need to tread carefully. The company works with smallholder The Oakland Institute has highlighted farmers and provides access to credit how universities such as Harvard and and extension services. Vanderbilt have invested in hedge funds Elsewhere, firms with no explicit linked to claims of land grabbing in strategy to invest in Africa have made Africa. Last year, Iowa State University some of their first moves there. In withdrew from an investment in AgriSol March, Boston-based Summit Partin Tanzania after sustained lobbying by ners announced that it would provide students. ● Paul Melly THE AFRICA REPORT

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James H. Parker, Vice President - jhp@pdiusa.com - Tel: +1 727 734 8589

THE CORPORATE COUNCIL ON AFRICA OPENS ITS DOORS TO THE AFRICAN PRIVATE SECTOR The Corporate Council on Africa (CCA), the largest membership organization in the United States that promotes trade and investment with Africa, has opened its doors to the African private sector and is now encouraging companies from the continent to join. Three new African board members have been appointed - Tony Elemelu, Chairman of Heirs Holdings, Aliko Dangote, Chairman of Dangote Group, and Jabu Mabuza, Vice Chairman of Telkom, South Africa. According to CCA Chairman Paul Hinks and CCA President Stephen Hayes, this move will result in new partnerships between the U.S. and Africa for CCA members and an increase in investment from the United States.

CCA offers unrivaled business networking at the numerous events it produces each year. These events often include the highest-level government officials from Africa and from the United States. This year CCA hosts its biennial U.S.-Africa Business Summit from 8th to 11th October in Chicago. It is the highest attended U.S.-Africa event that is held in the United States.

Email: summit@africacncl.org phone: + 1 202-835-1115

http://www.africacncl.org/


CAPITAL MARKETS

DEALBOOK

$13.6bn in M&A deals signed Investor interest in African emerging markets has not faded, and analysts are predicting an uptick at the end of the year

I

nvestors are signing bigger deals across Africa so far this year as business activity on the continent remains robust. The first half of 2013 saw merger and acquisition (M&A) activity totalling $13.6bn, a nearly 10% rise in value compared to the same period last year, according to Mergermarket data. There were 70 announced deals in the first half of the year. The energy, mining and utilities sectors registered 20 deals worth $9.5bn, accounting for 69.7% of total M&A activity in the first half of 2013. Asian investment in East Africa’s booming energy sector – specifically Mozambique’s – drove activity, with Italian oil giant Eni selling off a 28.6% stake in Eni East Africa for $4.2bn to China National Petroleum Corporation (CNPC) in July. That gives CNPC an indirect 20% stake in Area 4 in Mozambique’s offshore exploration zone. India’s ONGC Videsh and Oil India Limited paid $2.5bn for a 10% stake in the Rovuma Area 1 offshore block, previously owned by India’s Videocon Mauritius Energy, in June. BUSINESSES MATURING

These kinds of deals are likely to continue in the second half of the year, as major oil companies such as Royal Dutch Shell and Chevron reassess their assets in countries like Nigeria, and as governments strengthen their laws on local ownership. Activity has, however, been “a bit quieter than normal” for the first half, says Axel Smeulders, the head of Africa mergers and acquisitions for Standard Chartered Bank. “People have been working on deals, but announcing them is a little slower,” he says. Smeulders says he expects an uptick in activity in the second half of the year.

XAVIER MOUTHON/GLOBEPIX

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Eni struck a $4.2bn deal with CNPC in July

African M&A sector breakdown by value in H1 2013 Other 3% 13 Pharma 4% 3 Energy Construction 17% 5 Financial Services 2%

3%

20

8

Industrials & Consumer 1% 10 Consumer

70%

70 no of deals

11 SOURCE: MERGERMARKET

Buyers have been a bit more cautious in the mining sector, given volatility in Asian and European economies, so deals are taking longer to complete. Yet there is diversity in the type of deals completed, with transactions across a

variety of sectors such as industrials and agriculture. Even if small in value, they show businesses maturing, with entrepreneurial ventures growing into attractive assets. Intra-Africa activity is still gaining attention. South African firms are expanding into other areas of the continent, as seen by Tsogo Sun Holdings’ $68m purchase of a 75% stake in Nigeria’s Ikoyi Hotels in April. Nigerian firms are also looking outward, with Guaranty Trust Bank’s acquisition of a 70% stake in Kenya’s Fina Bank for $100m in July. Global buyers continue to be interested in the consumer goods sector, which made up almost 16% of M&A deals in the first half. There were 11 deals in the sector totalling $424m. Private equity firm Abraaj Group’s acquisition of Denmark-based Fan Milk International in June counted as a European

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CAPITAL MARKETS

in first half of 2013 TOP 10 AFRICAN BONDS H1 2013 DATE SIZE PRICED ($M)

ISSUER GOVT. OF EGYPT

A-Z LEAD ARRANGERS MATURITY AND BOOKRUNNERS

COUPON

28/5

2 700

AFRICAN 16/1 DEVELOPMENT BANK

1 000

0.875% 15/3/18 2.5% 29/4/21

4.25% 28/11/14 HSBC, Qatar National Bank BNP Paribas, Deutsche Bank, JPMorgan, Nomura BBVA, BNP Paribas, Crédit Agricole, Lloyds Bank, Santander

ANGLO AMERICAN

22/4

979

GOVT. OF TANZANIA

27/2

600

SEA TRUCKS GROUP

15/3

575

9% 26/3/18

AFRICAN 25/4 DEVELOPMENT BANK

500

0.875% 15/3/18

MILLICOM INT. CELLULAR

17/5

500

4.75% 22/5/20

BNP Paribas, JPMorgan, Standard Bank

GOVT. OF MOROCCO

22/5

500

4.25% 11/12/22

Barclays, BNP Paribas, Citigroup, Natixis

AFRICAN EXPORTIMPORT BANK

28/5

500

3.875% 4/6/18

HSBC, Commerzbank, Mitsubishi UFJ Securities, Standard Bank

425

0.875% 15/3/18

Standard Chartered, TD Securities

AFRICAN 9/4 DEVELOPMENT BANK

6m Libor 8/3/20 +6%

Standard Bank Pareto Securities Deutsche Bank, TD Securities

TOP 10 AFRICAN LOANS* H1 2013 DATE ORIGINAL TOTAL SIZE SIGNED CURRENCY ($M) TRANCHES

ISSUER

ANGLO AMERICAN 20/3

deal even though the frozen dairy and juice producer is listed on the Ghana Stock Exchange. Still, dealmakers say the takeover is evidence of a continued strengthening of the sector, fuelled by growing middle classes. On the debt side, the energy and mining sectors also dominated (see tables). Financial institutions are opening up in terms of financing deals. Mining giant Anglo American topped the list with a $5bn, five-year loan. The African Development Bank issued three fiveyear bonds totalling $1.9bn. Deal activity in 2013 may not be as high as previous years, but there are only so many large deals that can be done in Africa in a given year, says Smeulders. “We remain very positive on the outlook for Africa,” he says. “It’s one of the few bright spots in the global picture.” ●

SOURCE FOR BOTH TABLES: DEBTWIRE CEEMEA

MTN NIGERIA

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USD

5 000 term loan

USD

1 800

NGN

1 200 NGN local facility

Guaranty Trust Bank

USD international tranche

Commerzbank, Mizuho N.A.**

BONNY GAS TRANSPORT

26/3

USD

1 600 term loan

AfDB, African ExportImport Bank

NNPC

25/6

USD

amortising PXF 1 500 loans, international and local tranches

Standard Chartered

GOLD FIELDS

30/1

EGYPTIAN COMPANY FOR ETHYLENE AND DERIVATIVES

26/3

ETISALAT NIGERIA

22/5

USD/ NGN

CENNERGI

5/6

ZAR

819 ZAR 7bn

IFC, Standard Bank, Nedbank Capital

USD

800 IFC tranche

IFC, Stanbic, Standard Chartered

USD

449 revolving credit

USD

449 term loan

INDORAMA ELEME FERTILIZER & 18/2 CHEMICALS PUMA ENERGY

Kimberly S. Johnson THE AFRICA REPORT

23/4

BOOKRUNNERS/ CO-ORDINATORS

6/6

USD

720 term loan

USD

720 revolving credit

USD

750 USD tranche

EGP

500 EGP tranche two tranches USD1 200 and NGNdenominated

Barclays, Credit Suisse, JPMorgan Consortium of 5 Egyptian banks Consortium of 13 Nigerian banks

BNP Paribas, FirstRand Bank, Natixis, Nedbank, Société Générale, Standard Bank

*INCLUDES SYNDICATED AND CLUB LOANS, RANKED BY SIZE (USD EQUIVALENT) **(N.A.) DENOTES NOT AVAILABLE S E P T E M B E R 2 013

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Banque des États de l’Afrique Centrale

PROMOTING GROWTH AND DEVELOPMENT IN CENTRAL AFRICA

The Bank of Central African States (BEAC) is the Central Bank of the six states that make up the Economic and Monetary Community of Central Africa, CEMAC: Cameroon, Central African Republic, Congo, Gabon, Equatorial Guinea and Chad.

● ●

Advertorial

Defining and applying monetary policy Issuing currency Implementing Foreign Exchange policy Promoting financial stability Managing official foreign reserves Promoting payment systems

Founded in 1972, the BEAC is the common central bank for the six member states of the Economic and Monetary Community of Central Africa (CEMAC). This is fairly unusual, with few similar set ups anywhere else in the world, as most countries generally have their own central banks. The BEAC ensures the circulation of banknotes and coins of the CEMAC currency, the CFA franc, as well as the definition and application of monetary policy, keeping the accounts of Member State treasuries and managing their foreign exchange reserves. The BEAC also maintains close ties with the Banking Commission of Central African States (COBAC), responsible for licensing and supervising banks and credit institutions in the sub- region.

A solid institution

BEAC operates from its Yaoundé-based headquarters in Cameroon, from where

it works closely with national head offices in each Member State and decentralised agencies, one of which is based in Paris, France. The BEAC has ongoing and effective relations with leading international partners such as the World Bank, International Monetary Fund (IMF) and the Banque de France. Developing close ties with African and international financial institutions is indeed one of its priority tasks. This external cooperation strengthens its expertise and activities in facilitating the integration of CEMAC in the global economy.

Operating according to plan

After experiencing problems in 2009, the BEAC firmly set a strategic business plan, which was implemented in 2011 for a period of three years. It includes 200 priority measures and the affects the ten key pillars of the Bank’s operations, which include accounting, governance, human resources, information technology, financial management and procurement. Particular attention was paid to


audit tools and control tools, adapted to the BEAC’s highly decentralised organisation - less than a third of its 2,400 workers are based in Yaoundé. Besides the establishment of rigorous methods at all personnel levels and across all skills, this plan should enable the BEAC to function according to the most demanding international standards by 2013.

An efficient trading floor

Essential to driving policy that supports the common currency of the six CEMAC Member States and managing their foreign exchange reserves, the trading floor of the BEAC is a strategic

priority of the 2011-2013 Business Plan. Recruitment, training and cooperation, including with international partners, will create optimal conditions for the use of the high-tech tool already available to the Bank. The objective is to build the BEAC’s support for the economic development of CEMAC, in particular by its contribution to the Community Development Fund (FODEC) and the Development Bank of Central African States. Because of its adaptability to a constantly evolving environment, BEAC will continue to satisfy all stakeholders in the economic and social development of CEMAC Member States.The confidence of the people and businesses, both African and international, in the CFA franc, the currency it issues, clearly demonstrates the rigour and foresight of its monetary policy. The effectiveness, independence

and authority of the BEAC and its ongoing commitment to modernisation and development, allow it to assert its increasingly vital role in Central Africa’s economic integration.

On 22 and 23 November 1972 the mo-

netary cooperation agreements giving rise to the Bank of Central African

States (BEAC) were signed in Brazzaville, Congo. The BEAC issues the CFA

franc, which has legal tender throughout all countries belonging to the Monetary

1972-2012: Forty years of service in Central Africa

Union of Central Africa (UMAC) and

guarantees the stability of the single

currency. The BEAC also supports the general economic policies developed by Member States.

Responsible for issuing currency, defining and conducting monetary and foreign exchange policy, managing the official foreign reserves of

Member States, ensuring the smooth operation of payment systems and promoting financial stability, the BEAC is an essential part of

Central Africa’s economic integration. It is entering its fortieth year of existence with the determination to, more than ever, maintain its role

as reliable partner, one that is committed to serving CEMAC Member States, their economic stakeholders and their people.

BEAC, Banque des États de l’Afrique Centrale P.B 1917, Yaoundé, Cameroon

Tel.: (+237) 22 23 40 30, Fax: (+237) 22 23 34 68 www.beac.int


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INNOVATIVE FINANCE ENTREPRENEURS

Emergency on planet startup Small businesses fail at an alarming rate in Africa, due to lack of venture capital and knowhow. New investor networks and incubators aim to change that By Charles Idem in Lagos and Jeff Mbanga in Kampala

C

rowdsourcing ventures based on the model of the Kickstarter business fundraising website, and networks of ‘angel investors’ and venture capitalists, are springing up from Johannesburg to Nairobi, but raising capital remains one of the greatest challenges to the success of startups. The business environment for small businesses is rough: a 2007 report from the Kenya Bureau of Statistics found that 60% of small and medium-sized enterprises (SMEs)collapsed within just a few months of their creation. Competition within the SME and THE AFRICA REPORT

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startup market is fierce, with many was $125,000 – in June for BRCK, its mopeople trying to develop similar bile internet modem and router (see page business ideas. Banks in Nigeria, 25, TAR 53, August-September 2013). for example, are reaching out to Technology firms are the focus of many SMEs but most insist on seeing of these new investment structures. The a long track record of revenue Netherlands-basedAfricaMediaVentures before accepting to provide Fund (AMVF) provided $200,000 to the credit. Investors also comKenyan accommodation website Sleepplain that many entrepreneurs Out this May in order to help it expand its lack the training to develop a operations into other African countries. strong business model and to The AMVF is joined by institutions such know how to stand out from as East Africa Capital Partners and the their competitors. eVentures Africa Fund in the technology, These advances are not limited media and telecommunications funding to Nigeria but are spreading to the sector.CapeTown-based88mphprovides continent’s largest economies. The seed capital and an accelerator course to Kenyan-based Savannah Fund specialises in investKenyan software developer ments of between $25,000 Ushahidi went to Kickstarter and $500,000 for tech startand raised $170,000 upsintheirearlystages.It completed work with its first group of young companhelp mobile and web entrepreneurs get ies, which included a startup each off the ground. Forums like Co-Creation from Ghana, Kenya and Uganda, Hub Nigeria help people whose busiin June. It took on a new group of ness ideas combine solutions for social entrepreneurs in August. problems with new technological tools. South Africa has one of the It works with entrepreneurs from the most developed investor netidea stage through capital raising and works in Africa. It is home to funinto business expansion. ders like Ivenfin, which offers seed capital for companies RUNNING ON EMPTY in any sector, and the local Mayowa Owolabi is a technology entrebranch of the Angel Investpreneur in the buzzing tech ecosystem ment Network, which has in Lagos. In 2010, he and two partners nearly 30,000 investors. Webset up a business called Workdey (www. siteThundafundseekstoreplicworkdey.com) to address the problem of ate the success of Kickstarter, the finding competent artisans to carry out crowdfunding website launched repairs and provide other services for in the United States in 2009 that the public. After pooling and investing allows the public at large to invest personal funds and contributions from in new products and businesses. family and friends that amounted to The website’s backers are foN3m (about $18,600 at the time), they cused on South Africa after its built and found a host for the website. launch in June, but they plan They sealed agreements with several to expand its activities to the state governments, local unions and rest of the continent over the other relevant associations to support the next five years. business model. The site passed through The field is already filling up alpha and beta testing phases with good with crowdsourcing competitors, reviews and was set to launch when the as the sector’s development is still promoters ran out of cash. After trying in its early stages. In South Africa, in all they could, including meeting several addition to Thundafund, there is also local investors, they elected to abandon Startme and FundFind, while Ghana the venture but keep the site live. “We’d has SliceBiz, Kenya hosts M-Changa approached a lot of people and local inand Nigeria has StartCrunch. For vestors. One even made us an offer for now, there is more money in funding but with the proviso that we’d the long-established networks. cede 90% of the company to them and Kenyan open-source software also sign a lock-up agreement for five developer Ushahidi went to years during which we would not do any Kickstarter and raised more other thing aside from work for them,” than $170,000 – its initial goal Owolabi explains. THE AFRICA REPORT

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INNOVATIVE FINANCE

He also points out that entrepreneurs who studied abroad appear to be the only ones who can attract foreign funding. “Look at all the tech companies that have gotten funding, it’s either one or all their founders schooled abroad: Paga, Jumia, Wakanow. Obinna Ekezie from Wakanow schooled in the US, he even played in the NBA [National Basketball Association].” CHANGING ATTITUDES

Sourcing startup capital in Nigeria is often a frustrating experience for local entrepreneurs. Since local angels – wealthy investors who often provide finance and advice – and early stage investor networks are still largely undeveloped, entrepreneurs have only local banks and the alliterative combination of ‘friends, families and fools’ to approach for funding.Whiletherequirementsbytheformer are often prohibitive, contributions by the latter usually only carry the entrepreneurs so far. A lack of patient capital is a significant obstacle to the development of entrepreneurship and business ventures. A forum organised in May by the Omidyar Network, a philanthropic investment firm, reported that an estimated 95% of new businesses that are started in Nigeria shut down within one year of starting. Compared to Silicon Valley, where it is

Self finance and family loans are the main sources of funding

45%

Personal/Family Loans

19% 18%

Private Equity Bank Debt Government Funding Venture Capital Angel Seed Other

5% 5% 4% 4%

estimated that 30% to 40% of startups fail and there is a culture of rebuilding after projects collapse, the harsh conditions that Nigerian startups face is apparent. However, attitudes towards entrepreneurship are changing. The work culture has undergone a radical change from the 1970s and 1980s when most people sought the security and status of government jobs. More people now embrace entrepreneurship, with globalisation and 14 years of civilian rule helping to reshape mindsets. The Omidyar Network produced its ‘Accelerating Entrepreneurship in Africa’ report in April. An entrepreneur who was part of its survey was quoted as saying: “Perceptions are not that negative with regard to failed businesses; at least you tried and can start another business.”

Stakeholders are working to find solutions to financing problems. Nigeria’s communication technologies minister Omobola Johnson announced in August 2012 that the ministry is working to establish a $15m venture capital fund to provide funding to tech entrepreneurs and developers. Individuals in the private sector are also establishing new funding ventures. In May, Jason Njoku and Bastian Gotter of iROKO Partners, founders of the Nollywood startup iROKOtv, established SPARK, a company that invests in tech startupsandprovidesthemwithaccessto resourcestoenablethemtorunsmoothly. Njoku explains that “in Nigeria for startups, 50% of your time will be spent doing things which in the West you wouldn’t even think of doing: banking, incorporatingcompanies,sortingoutinternet.These add no value to your business, but you still have to deal with them. So the idea was, let’s divorce this non-essential stuff from these businesses and allow them to focus on delivering value.” Tomi Davies, a senior executive who sitsontheboardofMBOCapitalManagement, helped establish the Lagos Angel Network in 2012 to provide funding to Laptop innovation: Azeez Agoro charges N50 to upload video clips to mobile phones in Lagos

AKINTUNDE AKINLEYE/REUTERS

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tech startups. Davies admits that entrepreneurs have struggled to access capital partly because these structures do not exist. “We don’t have funds of funds. We have a few, but not a significant number of private equity funds. Venture capital is just starting, then seed [money], which is the primary level, is virtually nonexistent in any structured way, and that’s why it’s difficult. He adds further: “I don’t know if it’s going to change immediately. We are trying to change it, and I know there are a lot of people with a lot of passion and access working in this space, sort of trying to fundamentally alter it. The prospects are optimistically good, but my jury is still out.” INVESTORS NEED DATA

Uganda does not have a very strong investor network of its own. Stephen Kaboyo, the managing director of Alpha Capital Partners, a company that deals with preparing smaller firms to attract private funds, says it is a challenge to channel money towards local entities. “There is big potential here,” says Kaboyo, who arranges private funds in the range of $1m-$15m for SMEs. “But there is a big problem of information and data. If there is a private equity fund that wants to go into real estate, it will find a problem trying to know the top five real estate companies in Uganda today. It wouldn’t find that data,” he explains. Kaboyo, also a former director of financial markets at Uganda’s central bank, says that many Ugandan businessmen are not comfortable opening up their companies to due diligence. “They have governance issues like poor bookkeeping and weak policies on disclosure,” he says. Uganda’s government has tried to step in with some financial help. In 2012, it announced a USh25bn ($9.7m) venture capital fund for young people, which wouldbechannelledthroughlocalbanks. However, a number of people have complained that they have tried to access the funds but failed. The success of new funding ventures highlights the potential for growth of African startups. With nearly 50% of the morethan500entrepreneurssurveyedby theOmidyarNetworkandMonitorGroup in Ethiopia, Ghana, Kenya, Nigeria, South Africa and Tanzania (see graph) turning to friends and family for financing, the arrival of institutional investors and the growth in the number of angel investors could lead to a boom in SME and startup activity in the next decade. ● THE AFRICA REPORT

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OPINION

The pitch’s the thing There is more money chasing good business ideas than there are good ideas chasing money

H Allon Raiz Chief executive of Raizcorp, which is supporting more than 400 businesses

aving been in the entrepreneurial development industry for the past 13 years, I can’t argue that gaining access to funding in Africa is not an issue. However, at the risk of being controversial, I have found that a bigger issue than access to finance is entrepreneurs’ inability to articulate any compelling economic right for their businesses to exist. When entrepreneurs in Africa pitch for funding, it often becomes evident that they have put little thought into differentiating themselves from their competitors and they have not developed accurate costing models. In these cases, it is worth remembering that a good idea and company registration documents do not a successful business make. The first place I always tell entrepreneurs to find financing is the profit from a paying customer. Despite this, we all know that most entrepreneurs start with the ‘3 Fs’: friends, family and fools. This is often a good strategy, as it is generally more patient capital and one that is commonly used around the globe. If neither of these strategies is feasible, an entrepreneur can look to financial institutions, venture capital (VC) firms or angel investors. Financial institutions are generally risk averse. Institutional finance is therefore an option mainly for entrepreneurs who have established track records of starting successful businesses or for more mature businesses seeking to expand. VC firms and angel investors are starting to become more prolific in Africa. However, in all of the meetings that I’ve had with VC companies and angel investors, they have expressed their incredible frustration with the weak business cases that are presented to them.

In order to secure funding from VC firms and angel investors, entrepreneurs should ensure that they present the information that these funders want to see. If you, as an entrepreneur, are pitching your business for funding, I would strongly urge you to be extremely conservative in the financial projections you present and be prepared to explain where you derive your figures from. You should never include a market-related salary for yourself. You will need to show that you have an in-depth understanding of your competitive environment and be crystal clear on your differentiator. You should be just as clear on the expected return on investment for your prospective funder, as well as the expected repayment period. If you are able to follow these guidelines, investors will be able to see that your business idea has been thought through, that you have taken cognisance of the business environment and that you are willing to sacrifice to make the idea work. This will serve to allay some of their fears, remove some of their frustrations and enable you to create a strong first impression that could open the doors for meaningful funding discussions. ● S E P T E M B E R 2 013

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INNOVATIVE FINANCE

COMMUNIT Y FINANCE

Pull together, profit together Savings groups are empowering local communities to get better housing and are a new target market for banks and tech firms

S

ocial savings groups – known as tontines in West Africa and chamas in Kenya – may have been around for decades, but their capital is being put to new uses. Some are enabling inhabitants of slums and informal settlements to engage with governments and financial institutions to improve their housing situations. In Kenya, UNHabitat has come out in support of community-led slum upgrading projects, arguing that incorporating an element of communal savings means construction projects can cost less and that their use helps to create bottom-up rather than top-down solutions. This year, the University of Zambia, the People’s Process On Housing and Poverty in Zambia, the Zambia Homeless and Poor People’s Federation (ZHPPF) and Lusaka City Council agreed to work together on pro-poor housing improvementsintheZambiancapital.TheZHPPF saysitsmembershipof48,000households has collectively raised $400,000 that can

be used as the community’s contribution to housing improvement programmes. Having such money insures that community representatives get a seat at the negotiating table. Building up the strength of community organisations like the ZHPPF has enabled such groups to take part in nearly every step of the housing improvement process: from conducting censuses in informal settlements to formulating plans that use low-tech solutions to provide lowcost housing. Studies have shown that informal housing is often financed informally, and these new ways of pooling capital provide a means to give people title to land and better housing. Working together also helps group members access better loan terms. Non-governmental organisations (NGOs) hold up the project in Kambi Moto, an informal settlement outside Nairobi, as one of the best examples of the power of communal financing. With the aid of local NGO Pamoja Trust,

Kenya’s chamas began as women’s savings groups but now make more complex investments

the members of 270 households negotiated with Nairobi city council to have the land they had been squatting on for years transferred to the community. With the help of Muungano wa Wanavijiji, the Kenyan slum-dwellers’ federation, members of the community formed a savings group in 2000 to raise funds for housing. Each household received approximately 20m2 for the construction of a three-storey concrete house costing about $2,000. If families wish to sell, the land title goes back to the community.

Home Afrika – the rich man’s chama WHEN THE BELL rang at the Nairobi Stock Exchange to open trading on 15 July, it was to announce the entry of Home Afrika Ltd, the first real estate company to list on the Kenyan bourse. Home Afrika, essentially a rich man’s chama, is one of only two investment clubs listed on the NSE – the other is TransCentury Ltd, a dominant player in the infrastructure and energy sectors that began as an investment group 15 years ago.

Dan Awendo, an expert in small and medium-sized businesses and a director of Home Afrika, shrugs off the chama label. “It was not exactly an investment club. Home Afrika was set up specifically to pool resources in the real estate sector – unlike investment clubs which have diverse interests.” By 2017, Home Afrika expects to have a portfolio of $1bn. Its projects now range from an office complex in Nairobi’s Kilimani suburb, to a

KSh1.1bn ($14m) gated community-cum-golf-resort development in Kiambu on the outskirts of Nairobi, and planned developments in the lakeside city of Kisumu, in Kwale County and in Machakos. “It was initially difficult to raise debt financing from the banks. Trying to sell the golf development concept to financiers in a country where only one – the Great Rift Valley resort in Naivasha – has been successful, was not easy. Eventually, Equity Bank THE AFRICA REPORT

came through with 60% financing. The rest was equity capital,” explains Awendo. Home Afrika is also the first entrant on the NSE’s new Growth Enterprise Market Segment (see page 44). It was listed on the NSE 11 days short of its fifth anniversary. Reflecting the appetite for real estate companies on the NSE, Home Afrika’s share price more than doubled on the first day of trading, soaring from KSh12 to KSh25. ● P.K.

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INNOVATIVE FINANCE

The financing mechanism at the Kambi Moto project consisted of a 10% downpayment from each family and then a 90% loan from the Muungano group with interest rates of 6% per year. The loan was repayable over five to seven years and each household had to provide at least 80 hours of communal labour to support the project’s development. International NGO SELAVIP and local communities are developing new pilot projects at Nyamarutu in Nakuru and Kiandutu in Thika. LOANS AND TRAINING

The South African government encourages mostly female-headed households to engage in communal savings with the KuyasaFund,whichwascreatedasapilot project in 1999. The fund provides people who have participated in communal savings groups for at least six months with loans of up to R30,000 ($2,900) to enable them to improve their housing conditions. The fund also provides training to groups on record keeping and savings group governance. While organs of the United Nations tend to support community involvement in housing projects, the World Bank has been more critical. In a report on urban upgrading in 2002, the Bank argued that governments were not efficient in recovering the costs of upgrading and that they often did not impose sanctions on people who refused to pay. THE AFRICA REPORT

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FORMAL AND INFORMAL SAVING Adults saving money in the past year (%) 100 Adults who saved Using other methods only At a financial institution 0

East Asia Sub-Saharan High-income & Pacific Africa economies

SOURCE: DEMIRGUC-KUNT AND KLAPPER, WORLD BANK 2012

set up a platform called ChamaPesa that allows groups of savers to buy investment products via mobile phone. Rafiki Deposit Taking Microfinance, a subsidiary of Chase Bank, is one of the Kenyan financial institutions targeting chamas. In May it launched a new service toattractchamasasclients,allowingthem toborrowuptoninetimestheirsavingsin order to invest in land, equities, treasury bills and other vehicles. Rafiki’s chief executive Daniel Mavindu says that chamas hold more than KSh100bn ($1.1bn), though there are no official figures. These advances are not limited to EasternandSouthernAfrica.In2006,thebank Crédit Foncier du Cameroun launched a product called Foncier-Solidarité that targets the members of a tontine who are not able to access housing finance through other banks. Members of a group pay a communal deposit and the bank uses the group’s income to calculate the amount each member can take out in a loan. Not all informal savings groups function in the same way. A study in South Africa showed that groups focused on investments were rare but becoming more important. The 2011 African Response survey found that savings groups (43%) were the most popular, followed by burial (22%), grocery (16%), birthday (9%) and investment (5%) groups. As incomelevelsrise,thereismoremoneythat can be channelled to investment groups. Patrick Kariuki, chairman of the fiveyear-old KenyaAssociation of Investment Groups, estimates that chamas control as much as KSh300 billion, making them far and away the largest source of collective indigenous capital. “Investment clubs are very good aggregators of capital because they enhance individual savings. Real estate and stocks have become big attractions for them in recent years. But the most important element is the intel-

Ever sinceKenyan nationalist Jaramogi Oginga Odinga established the Luo Thrift and Trading Company by pooling local resources to establish African-owned businessesduringthelatecolonialera,the chama has been a feature on the Kenyan economic landscape. For the most part early chamas were women’s self-help organisationswhosemembers raised money to assist each A platform called ChamaPesa other through what later bewill allow savings groups came known as ‘the merryto invest via mobile phone go-round’–arotationalgrant from the group’s collective savings that passed from one member to lectual capital that’s organised through another. As the more prosperous chamas them. If you imagine the power of the found themselves with extra cash, the ideas that circulate among members, accent gradually shifted away from inyou can see the potential of the chama dividual grants to group investments. to transform the economy,” says Kariuki. Now, chamas have embraced the His organisation has a membership of digital age. A company called Dinero is 6,000 groups, though he reckons that looking to combine the chama with the there are thousands more out there. ● technology of mobile-money systems Parselelo Kantai in Nairobi and like Safaricom’s M-PESA. Dinero has Marshall Van Valen S E P T E M B E R 2 013

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INNOVATIVE FINANCE

SEAN WILLIAMS

64

The slum of Bangladesh, now deprived of its Pesa

ALTERNATIVE CURRENCIES

Bangla-Pesa faces trouble Nairobi has brutally slammed a Mombasa-based complementary currency scheme that offered one local community a path out of poverty

F

ewplacesonearthembodyincome inequality quite like Bangladesh, a great dusty slum on the outskirts of Mombasa. Home to 26,000 people, it sits atop an ascetic crossroads about 5km from the five-star resorts studding the Kenyan coast. The main, winding mud track through town is clogged, and many people cannot afford the KSh20 ($0.20) ride into the city. It was the perfect place, argued economist Will Ruddick, to start an alternative or complementary currency (CC). But after less than a month the government shut down the newly launched Bangla-Pesa scheme in late May and jailed him and his collaborators on charges of forgery. CC systems, of which there re are around 4,500 worldwide, are commonplace in Europe, Asia and particularly South America, where systems in Brazil and Venezuelaa have led the way. But aside from the Doole

project launched by a women’s group and a non-governmental organisation in Dakar in 1998, and Cape Town’s Community Exchange System – which has no physical currency and is a system of exchanging goods and services – Africa 5, 10 and 50 BanglaPesa tokens

has lagged behind other regions. This is chiefly because of the interventions of central banks and a continued demand for microfinance. Ruddick is a former United States Peace Corps volunteer and an economic development expert. He worked alongside Koru Kenya, a Mombasa-based charity, to implement Bangla-Pesa. The currency is based on a system of multilateral reciprocal exchange. Starting on 11 May of this year, 109 busiin nesses in Bangladesh signed up to the ne scheme by contributing KSh400 each, sc which acted as mutual credit. Of that, KSh200 was retained to be spent in the community on projects th such as drainage systems and schooling. There were 1,000 tokens circulating in denominations of 5, 10, 20 de and 50. Within a fortnight, an local trade was up 22%. More lo than 83% of users reported th increased sales. in Koru Kenya had other experience with alternate curpe rencies after working on a pilot renc project, Eco-Pesa, in the Konproj gowea region of Mom- ● ● ● gowe

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Geneva, 17-19 march 2014

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INNOVATIVE FINANCE

● ● ● basa in 2010 and 2011. Eco-Pesa used vouchers as a means to strengthen local businesses and to encourage participation in donor-backed health and environment programmes. The backers reported that threequarters of the businesses in the BanglaPesa network are operated by women, many of whom live in extreme poverty. Mildred (pictured) saw a big increase in trade at her shop after the launch of Bangla-Pesa. She exchanged her excess goods for Bangla-Pesa. Because the system was mutual, on Mondays – the slowest day for trade in Bangladesh – those who could not afford eggs used Bangla-Pesa to buy them from Mildred, preventing them from languishing in the shop and going bad.

WASTE NOT, WANT NOT

Paul, a greengrocer who has lived in Bangladesh his whole life, normally buys a box of tomatoes for KSh500. If he sells all of them, he could make KSh700 profit. But frequently he could not, which meant that if Paul needed supplies or a ride across town, he might have to sacrifice a meal or two. “Before it was only survival,” he says. “We were doing good business, but there was no money.” With Bangla-Pesa, Paul could trade excess tomatoes for Bangla-Pesa instead of shillings, which were at a premium on some days due to remittances or the payment of school fees. But on 29 May, the authorities, tipped off by a journalist, banned Bangla-Pesa and threw Ruddick and five others from Koru Kenya in jail – first on charges of treason, then later forgery. The case remains open and all six are facing the possibility of seven-year sentences. The

SEAN WILLIAMS

66

With the Bangla-Pesa, Mildred’s poorer customers could buy eggs

next hearing is planned for 22 August. The Bangla-Pesa team included members of Alpha and Omega, a community group headed by Alfred Sigo. “I am one of the ones who could be going to jail,” he said, at the group’s tiny office. “The government has got this all wrong.” Bangla-Pesa supporters argued the government felt threatened by anything that supported a strong local identity due to the presence of the separatist Mombasa Republican Council. Kenya’s central bank also does not support CC systems that challenge its dominance atop the national economy. The central bank

did not respond to The Africa Report’s requests for comment. “The transactions were actually around KSh100 per day [per person],” says Ruddick. “This wasn’t a replacement for shillings. In fact, people were just selling their excess capacity. The shillings stayed the same.” Ruddick and Koru Kenya had planned to create a system that would allow for the exchange of Bangla-Pesa via mobile telephones before the end of the year, but any new developments will now depend on the outcome of the court case. “As we already know, the roots of poverty are a lack of education, skills training, opportunities for production and distribution, and access to money and credit,” explains Stephen DeMeulenaere, founder of the Complementary Currency Resource Center. “If we can find an integrated solution that deals efficiently with each of those roots,” he says, “then we can say that the BanglaPesa and thousands of other currencies like it are a very necessary vehicle for people to put poverty behind them.” Meanwhile, the community of Bangladesh is waiting for the central bank’s next move. Many have since stashed their notes away. Paul is frustrated that the government is missing a chance to transform the lives of some of its most disenfranchised citizens. “We lack jobs here,” he said. “Some people are prostitutes; others are thieves. If they use this project then they can lift up their lives. When the government knows that this brings a profit to our people, then we will be good,” added Paul. “We are low value. We are not hurting anyone in the government.” ● Sean Williams in Mombasa

From Brazil to Bristol to Bitcoin THE BANGLA-PESA EXPERIMENT is by no means the first of its kind. It has been tried and tested from Brazil to Bristol, Switzerland to cyberspace. The oldest complementary currency, the WIR in Switzerland, was founded in 1934 and incorporated 60,000, or 20%, of Swiss businesses. The initiative was credited for helping to stabilise the

Swiss economy. WIR Bank, which issues and manages the currency, had turnover equivalent to $2bn last year. The Banco Palmas project, founded in 1998, is Brazil’s most successful local currency. In its infant stages, the Brazilian central bank accused it of being a money-laundering operation. However, the courts ruled in its favour

and it has gone on to be highly successful. Support for community banking systems is now a part of Brazilian state policy, and initiatives like Banco Palmas are widespread. The town of Bristol, in Great Britain, likewise launched the Bristol Pound in 2012. It is designed to keep local wealth in local pockets. More than 500 local THE AFRICA REPORT

businesses have signed up, making it the country’s largest alternative currency. South London’s Brixton Pound is another example. Bitcoin, the online alternative currency, has risen dramatically in value this year. While the Thai authorities have declared it illegal, it is thriving in Germany and Russia. ● Ruby Edwards

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69

COUNTRY FOCUS

Mauritius

FRANZ-MARC FREI/CORBIS

Port Louis sees itself as the gateway to Africa for investors

Strategic refocus Africa is the target of Mauritius’s charge to become a stronger investment and financing hub. The government is reviewing its tax treaties with India and South Africa as it prepares to launch a new “ocean economy” to further diversify the island’s productive base By Gemma Ware in Port Louis

THE AFRICA REPORT

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M

auritian businessmen mastered diversification long ago. With a foresight and momentum similar to that which drove the country’s economy away from its reliance on sugar and into textiles, tourism and financial services in the 1990s, so the financiers who flocked to Mauritius in recent years are readjusting their strategies away from India and towards the African continent. “We think we are positioned to become thepreferredgatewayforinvestmentfrom the rest of the world into Africa,” ● ● ●


COUNTRY FOCUS

70

MAURITIUS

PORT LOUIS Indian Ocean

MAURITIUS

Indian Ocean

10 km

KEY FACTS 1.3 million

POPULATION:

$8,912

GDP PER CAPITA (2012): GDP GROWTH (2013):

3.3%

INFLATION (JULY 2013):

3.6%

GOVERNMENT REPO RATE (JUNE 2013): 4.7% (down from 9% in 2008) FOREIGN DIRECT INVESTMENT (2012): $407.6m (up 34% from 2011) 58% to Europe

EXPORTS (2012): RATING (MOODY’S):

Baa1 (upgraded in June 2012) 19

SOURCE: MAURITIUS CHAMBER OF COMMERCE AND INDUSTRY

DOING BUSINESS RANKING (2013):

GDP BY SECTOR Agriculture & fishing

3.5

Tourism & retail

Construction

6.3

Electricity

1.8

18.9

Finance

9

Manufacturing

17.6

Transport & communication

23.5

Public administration

Other services

13.5

5.9

FINANCIAL SERVICES SECTOR Growth rate % Value ($m)

SOURCE: AFDB

771 10.2

832

855

4.6 4.3 2008

2009

2010

936

1 000

5.7

5.7

2011

2012

● ● ● says Rama Sithanen, a former finance minister who now chairs local firm International Financial Services. In 2012, 51% of investments made by global business companies (GBCs, the name given to shell companies, see page 75) registered in Mauritius went to Africa, up from 31% in 2010, according to the Financial Services Commission. India’s share dropped from 32% to 16%. While a key driver of this geographic shift has been the continent’s steady economic growth, there is a quiet admission from bankers that uncertainty caused by negotiations to amend a 30-year-old double taxation avoidance agreement (DTAA) between India and Mauritius has played its part. Standard Chartered Bank’s Mauritius chief executive Sridhar Nagarajan says the issue “was a consideration” during the bank’s decision to focus its strategy on Africa four years ago. Before 2009, 95% of the bank’s business was India-centric, explains Nagarajan. “Today, 40% of our business would be India-centric, 30% would be Africacentric and the rest all over Asia,” he says. “We are actually de-risking our model.”

A POLITICAL ISSUE IN INDIA

2014 is an election year in India, and there are many political attacks on Mauritius’s role as a financial intermediary. An estimated 40% of India’s foreign direct investment transits through Mauritius, and any mention of changes to the DTAA causes jitters in Mauritius and on the Bombay Stock Exchange. A joint working group last met in April 2013 – its tenth meeting – but there is still little sign of an agreement. Mauritius has proposed introducing a limitation of benefits (LOB) clause, which would impose new rules on a company before it could earn a tax residency certificate to benefit from Mauritius’s lower tax regime. Despite uncertainty over India, Mauritius is building its Africa strategy on similar pillars, having signed DTAAs with 19 African countries, most recently with Gabon in July. Some of the DTAAs, including with Nigeria and Kenya, await ratification. In South Africa – which is competing with Mauritius to attract the headquarters of multinational companies – there has been a mounting unease among politicians about the tax benefits Mauritius gives companies. In May, South Africa’s finance minister Pravin Gordhan announced proposed changes to the 1996 DTAA that would alter rules on dual residency, capital

gains tax and withholding taxes on interest, dividends and royalties. South Africa’s parliament has not ratified the new deal, and Mauritius’s finance minister Xavier-Luc Duval told The Africa Report that both sides should look at the agreement again (see page 72). Local politicians and bankers insist Mauritius is not a tax haven, yet in the next breath they often compare the island’s competitive advantages to those of the Cayman Islands, the British Virgin Islands and Jersey. The corporation tax is 15%, but tax credits for GBCs mean the maximum they pay is 3%. The contribution of financial services to gross domestic product (GDP) remains relatively low because of the island’s economic diversification. The sector accounted for 10.3% of GDP in 2012, with 5% coming from the global business sector. Tax revenue is much higher, and according to Sithanen, a quarter of the government’s corporate tax take comes from management companies and GBCs. The Mauritian government appears unfazed by the Group of Eight’s (G8) June push for more transparency and substance from companies operating in tax havens. The country has already implemented strict anti-money-laundering laws and tax-information-exchange agreements, and rules that require GBCs to conduct more business in Mauritius (see page 75). The push for substance

THE AFRICA REPORT

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MAURITIUS

Looking like an extra-terrestrial space station, the Mauritius Commercial Bank HQ is a landmark in Ebène’s Cyber-City

The government is generally responsive to proposals from the financial sector for new reforms, most recently on suggestions to position Mauritius as a regional treasury centre for Africa. Standard Chartered’s Nagarajan, who chaired a working group on the issue, says the bank already has five clients doing cash pooling from Mauritius.

JACQUES SIERPINSKI/EPICUREANS

STOCK EXCHANGE BOOST

dovetails with the government’s strategy to increase the sophistication of the products and services in the financial sector. “We want to capture more value in the revenue chain. Move up the supply chain, like we have done in sugar, like we have done in textiles, like we are doing in ICT [information and communications technology],” says Sithanen. Since introducing new rules on protected cell companies in 2005, Mauritius has passed regulations on a range of new financial instruments. In 2012, the government passed three acts to regulate limited partnerships, pensions and foundations. New rules to allow limited liability partnerships are likely.

While the managers of the Stock Exchange of Mauritius are trying to attract more listings from Africa-focused investors (see page 76), in 2010 India’s Financial Technologies Group set up the Global Board of Trade (GBOT) there. Initially trading futures contracts for currencies and commodities, in May it introduced contracts for difference on gold,oilandsomecurrencies,whichchief executive Rinsy Ansalam says has “given us a lot of traction”. Trade has risen from around $30m to $40m per day. Despite this move up the financial value chain, Mauritius still has work to do on changing perceptions. “I keep teasing my friends,” says Sithanen. “We don’t lie down under coconut trees and indulge in financial malfeasance.” However, a series of Ponzi schemes uncovered earlier in the year were particularly damaging for the island’s reputation and regulators (see page 76). “Definitely, if Mauritius wants to position itself as a platform for financial services, we should be able to act very fast and in a coordinated manner,” says Raj Makoond, director of the Joint

COUNTRY FOCUS

Economic Council, an umbrella group for private-sector bodies. Meanwhile, the Mauritian economy remains heavily dependent on Europe for trade and tourism revenue. Statistics Mauritius predicts a growth rate of 3.5% for 2013, up from 3.3% in 2012. Unemployment is hovering around 8% but is 27% for 16-25 year olds, says Makoond. “There’s a major paradigm shift in the economic structure of Mauritius,” he says, and the country is moving from a low-skill to a high-skill economy. Some in the private sector are concerned what this shift towards a service-led economy may do to the island’s labour force. Gilbert Espitalier-Noël, chief executive of the property wing of conglomerate ENL, says the island has lost its competitive advantage in the manufacturing industry. While he says the financial services sector creates “fantastic high-level jobs […] it creates a different problem […] which is what do you do with unskilled labour.” Mauritian policymakers do not want to put all their eggs in one basket, especially just two years away from elections in 2015. The next hot sector is the “ocean economy” – a catch-all title designed to incorporateeverythingfromfinancialservices for shipbuilders to seafood exports and marine biotechnology. Some financiers believe Mauritius is well placed to become a key Indian Ocean hub, providing break bulking services and manufacturing capacity. “Manufacture it here. You sell it to COMESA [Common Market for Eastern and Southern Africa] and SADC [Southern African Development Community], and you get [the waiver of] a 22% customs duty,” says Standard Chartered’s Nagarajan. “Do the maths. Overnight it will become a hub.” ●

INVESTING UNIQUE EXPERTISE IN AFRICA In 2012, Omnicane Limited a leading Mauritian listed company, partnered with the Pabari Group of Kenya in a green field sugar manufacturing project worth USD 200 M. The Kwale International Sugar Company Limited is creating and developing an integrated sugarcane cluster and an 18MW cogeneration plant which will be operational in 2014. More recently, Omnicane has signed a Power Purchase Agreement in the name of REFAD Rwanda to build and operate a 6MW hydro-electric power plant in Nyamagabe, Rwanda. We look forward to further enhancing our role in Africa’s economic and social development.

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COUNTRY FOCUS

MAURITIUS

INTERVIEW

Charles Gaëtan Xavier-Luc Duval VICE PRIME MINISTER AND MINISTER OF FINANCE

A financial services centre must innovate

ALL RIGHTS RESERVED

72

Limited liability partnerships and revisions to the tax treaty with South Africa should attract more banks TAR: What’s your ambition for the future of Mauritius’s financial services sector? CHARLESGAËTANXAVIERLUC DUVAL: It’s become a bit of a platform for worldwide investment, particularly India and China. But now we see that about 60% of the companies formed in the global business sector are actually targeting Africa. It’s excellent news for Africa because it means that we are channelling a lot of investment to Africa. It’s excellent news for us because we feel particularly lucky to be on the shores of Africa and being able to play perhaps the same sort of role that Hong Kong played for China. If we want to increase the supply of services from this island, each company that is formed here [needs] to be able to have more commercial substance. We already have a quite varied sector, but, especially in terms of investment into Africa, we don’t want people to come here just for the tax advantages. A financial services centre [keeps] having to innovate in terms of products – that’s why we’re going to have limited liability partnerships soon. In terms of making Mauritius an investment hub for Africa, is one of the key pillars bringing more African banks here? Ithinkmoreinternationalbanks, including African banks. We want

this island to have a large source of talent that people can tap when thinking of investing into Africa. We have about 4,000 highly talented people who come on a special work permit called an occupation permit. We want to increase that to about 5,000 in the short term and to 10,000 in the medium term. There was a new tax agreement signed with South Africa in May. Has that been ratified? No. The agreement was negotiated just before I joined this ministry. It was signed recently, but there has been some uneasiness, here and in South Africa, with article 4 of the agreement, which

We want this island to have a large source of talent to tap when investing into Africa deals with low-tax residency for companies. Investors hate uncertainty, and in their view it provides too much uncertainty as to where a company will be tax resident. It has to be carefully considered and maybe should be accompanied by an MOU [memorandum of understanding] between the tax authorities. I’ve engaged with the South African embassy here. It’s not exactly related to the India treaty, but it is the same aspect: that is the greater the certainty, the better all round. The THE AFRICA REPORT

issue that we also have with India is that the General Anti-Avoidance Rules (GAAR) regulation left too much uncertainty as to when the tax authorities may act, and people don’t like that. Statistics Mauritius revised the economicgrowthratedownfrom 4% to 3.5%. Are you confident you’re going to see improved growth? The diversification of the economy has meant that we’ve been able to achieve remarkable resilience really, given the huge dependency on Europe. Of course we can always do better. Maybe on our tourism side there should have been more buoyancy. We need to look at how we accompany our private sector. We can do it a little bit better. But to imagine that we would have had 5% growth once our main partner was in recession is just not possible. Once Europe picks up again, we [will] have had a stronger nonEurope market, [so] with a resurgence in European earnings, that is then going to be a very substantial thing. We’ve also obviously got new sectors coming along, like the maritime hub. We also hope before the end of the year to have a framework for deep-sea [oil and gas] exploration. ● Interview by Gemma Ware in Port Louis FINANC E SPECIAL

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COUNTRY FOCUS

MAURITIUS

DEBATE

Is Mauritius a tax haven?

Tax justice campaigners and the Indian government accuse Mauritius of being a base for companies to avoid taxation, but the government insists that it is just a low-tax jurisdiction. The Africa Report examines the arguments

Yes

Mauritius siphons off money from countries where economic activity takes place

T

ax havens are technically called ‘secrecy jurisdictions’ and offer harmful structures of secrecy, tax avoidance and the differential treatment of non-nationals. They compete on how low the tax rate can go, and some simply collect company registration fees and no tax at all. This allows companies to fragment themselves and register shell and holding companies, and leasing and management operations, in a jurisdiction where no tax is paid, and then artificially send profits made elsewhere to the offshore fragment in order to avoid tax. In this way, secrecy jurisdictions infringe on the rights of nationals from the country where the actual economic activities take place by denying them the rightful tax revenue of the value created there. Despite SABMiller, Africa’s largest brewer and the second-largest in the world, making profits of more than £2bn ($3.1bn) a year, in 2010 the charity ActionAid found a woman who runs a shop just outside of its bottling plant in Ghana paid more tax than the multinational. United Kingdom-based SABMiller uses 65 tax haven companies: more than it has breweries and bottling plants in Africa. First it stores its ‘local’ brands – like Castle, Chibuku and Stone – in the Netherlands, where they collect royalties with a tax loss of £10m per

annum. It pays management services fees to sister companies in Switzerland, avoiding a further £9.5m in tax in Africa and India. Then Mauritius comes in with a logistics role. The Accra brewery in Ghana sources raw materials from South Africa but routes them through Mauritius, losing Ghana about £670,000 in tax. Finally, using Mauritius in a ‘thin cap’ arrangement, the Accra brewery is kept artificially undercapitalised, in other words in debt to the Mauritian subsidiary MUBEX because interest payments can be offset against tax, losing Ghana a further £76,000 per year. SLEIGHT OF HAND

There are two fictions being propagated by those who want to exploit secrecy jurisdictions and those marketing their services: that some secrecy jurisdictions are better than others and that their services are essential to the global economy and economic development in Africa. It is true that secrecy jurisdictions differ in the degree of opacity they offer. Indeed, in 2009 the Organisation of Economic Cooperation and Development tried to clean up a bit by generating a ‘black list’, ‘grey list’ and ‘white list’ by allowing jurisdictions to sign voluntary bilateral tax information exchange agreements. But by allowing jurisdictions to sign voluntary bilateral tax information exchange agreements the ‘black list’ magically disappeared soon after. Mauritius is now on the ‘white list’. In truth, by providing an exceptional space for wealth to be stored, all secrecy jurisdictions provide for theft by artificially allowing companies to move profits to where they pay less tax and where the provenance of the money is largely unchecked. To say that one tax haven is better than another is to say one would prefer to be mugged at knifepoint rather than at gunpoint. ●

Corporate tax rate:

3%

Mauritius

The island has a corporation tax of 15%, but tax credits for global business companies mean an effective rate of 3%. There is no capital gains tax and no withholding tax on dividends.

0%

Seychelles

There is no tax on income or profits for international companies. There is no capital gains tax, and the government does not tax interest payments from abroad.

0%

Dubai

The Dubai International Financial Centre does not tax income or profits of companies registered there. There are no dividend, royalty or withholding taxes and no exchange controls.

THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


COUNTRY FOCUS

Port Louis is more than just an offshore address, says former finance minister Rama Sithanen

MICHAEL FRIEDEL/RAPHO

Marc Hein, chair of the Financial Services Commission, compares the 25,000 global business companies (GBC) registered in Mauritius to the 375,000 in the Cayman Islands, more than 1m in the British Virgin Islands and 125,000 in the Seychelles. “If we had wanted to be looking at quantity rather than quality, today we could easily have been at 250,000. But we decided to do otherwise,” he says. Hein emphasises the government’s policy push for companies registered on the island to have ‘substance’: to bring more to the economy of the island, to open substantial offices there and employ Mauritians.

how low can it go?

17%

Mauritius is a lowtax jurisdiction pushing for more substance

Singapore

Though the headline corporation tax is 17%, effective rates are much lower. There is a 75% exemption on the first S$10,000 of income and 50% on the next S$290,000.

M

auritius’s vice prime minister and finance minister XavierLuc Duval is emphatic: “We’re notataxhavenbecausethereisnosecrecy. You can’t open a bank account here without giving your full details. We are happytoexchangetaxinformationwithall our partners.” Duval defends Mauritius’s right to be a low-tax jurisdiction. “Every time we’ve brought down the tax rates, tax revenues have increased, so it’s been done for genuine reasons,” he explains. For a country like Mauritius, with no large government expenditure on the military, there is no need to overburden the population with taxation, he argues. “What you need is economic activity and buoyancy,” he says. Duval claims Mauritius is following discussions about tax havens at the Group of Eight (G8) closely, “but it has to come up with more concrete suggestions so we can look at them.”

28%

South Africa

Corporation tax is 28%. Capital gains are subject to tax but only 66% of capital gains are included in taxable income. Since April 2012 there has been a 15% withholding tax on dividends.

30% India

Domestic companies are charged a 30% corporation tax, while foreign companies are charged 40%. Capital gains are taxed at the corporate rate. There is no withholding tax on dividends. THE AFRICA REPORT

FINANC E SPECIAL

No

S E P T E M B E R 2 013

BOARD MEETINGS IN SITU

The law already obliges some offshore companies – those registered as a global business company 1 (GBC 1) – to do this. To obtain a certificate of tax residency, a GBC 1 must have two local directors, a local auditor, a principal bank account in Mauritius and board meetings held and chaired in Mauritius. GBC 2s, of which there are more, have less stringent requirements. Rama Sithanen, a former finance minister who was responsible for the reforms that introduced global business into Mauritius in 1994, says this push for substance is important for Mauritius’s reputation. “It’s not a question of having shortcuts. We don’t do that. We can’t afford to do that because we need to have our reputation in all the other sectors of the economy. Mauritius is quite unique, we’re not one of these small island economies that rely for 90% of its business on global business. This is a broad-based, vibrant, fully diversified and dynamic economy,” Sithanen says. In a move to assuage Indian claims that companies are just doing ‘brassplate’ operations in Mauritius because of the low-tax regime, there is now a tax official sitting in the Indian embassy in Mauritius who facilitates the exchange of information. “This exchange of information, I think, is of paramount importance,” says Hein. “Fifteen years ago we would not have accepted that, and today we accept it. We can see that we had to make concessions.” ● Gemma Ware in Port Louis

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COUNTRY FOCUS

MAURITIUS

PEOPLE TO WATCH

Expanding horizons on a small island It’s been a busy year for the small group of influential individuals that make up Mauritius’s senior banking and regulatory community

MAURITIUS STOCK EXCHANGE

T

GILBERT GNANY: Successful restructuring for MCB

BOURSE INNOVATIONS

Also doing his bit on the African stage is Sunil Benimadhu , the chief executive of the Stock Exchange of Mauritius (SEM), who is the current president of the African Securities Exchanges Association. Benimadhu has been driving an internationalisation strategy at the SEM for the past three years, opening up new products in an effort to attract more capital. Benimadhu is looking to attract junior mining companies to the bourse, as well as working with the Singapore-based Impact Investment Exchange Asia to establish an exchange for companies involved in

impact investing, the sector in which investors seek social and environmental gains as well as profits. The restructuring of the Mauritius Commercial Bank (see page 78) has occupied the time of Gilbert Gnany , its chief strategy officer. He returned to Mauritius in 2009 after two years advising the World Bank’s executive board on the private sector. The government often seeks out Gnany for advice on economic policy, and he was on the steering committee that set up the FSC. He is now chair of the Statistics Board and is coming to the end of a four-year term on the International Monetary Fund Advisory Group for sub-Saharan Africa. ENTER THE CONGLOMERATES

SUNIL BENIMADHU: Targeting impact investors

MAURITIUS COMMERCIAL BANK

he mass of glass-fronted towers of Ebène’s CyberCity belies the close-knit group of bankers, regulators and advisers driving the expansion of the Mauritian financial services industry. Based in the heart of CyberCity, Financial Services Commission (FSC) chief executive Clairette Ah-Hen has had a difficult start to the year. The authorities uncovered a series of Ponzi schemes – fraudulent investment vehicles that pay investors from their own money or from new investors rather than from profits – earlier this year at White Dot, Sunkai and Je T’aime Marketing. Investors have raised questions about the competency of regulators at home, and, by extension, in the offshore market. Ah-Hen later explained why the FSC had not seen the schemes coming. Against this backdrop, central bank governor Rundheersing Bheenick told The Africa Report that he is “extremely concerned” about the regulatory gaps in the ‘twin-peak’ model of regulation – where prudential and financial services regulation come under the authority of two different institutions. Awarded a third term in May until 2016, Bheenick said the central bank wants to review legislation and “move towards regulatory unification”. Bheenick is the current vice-chair of the Association of African Central Banks.

BANK OF MAURITIUS

76

RUNDHEERSING BHEENICK: “Concerned” about regulatory gaps

With two of the biggest Mauritian conglomerates, GML and CIEL, having moved into the banking sector, the chief executives of their two new banks are familiar faces. James Benoit, a Canadian ex-HSBC man who returned to Mauritius to set up AfrAsia Bank with GML, is attracting high-net-worth depositors to its boutique bank and also moving the bank into continental Africa (see page 78). Raj Dussoye is chief executive of Bank One, a company that CIEL Investment and Kenya’s I&M Bank purchased in 2008. Dussoye, who worked for the State Bank of Mauritius in India, is also president of the National Resilience Fund Equity Investment Limited, a Rs300m ($97m) government initiative set up during the financial crisis to help small and medium-sized enterprises. While many Africa-focused private equity firms route their back-office accounting through Mauritius, Thierry Hugnin, chief investment officer at CIEL Investment, is one of the few fund managers operating from the island itself. The group provided €11m ($15m) of its own money to kickstart the first Kibo Fund, a €30m fund launched in 2008. Hugnin will be closing the investment period in September after making seven investments. He is now fundraising for Kibo Fund II, with a target of €80-100m, for equity deals of around €4-6m in Southern and Eastern Africa. ●

THE AFRICA REPORT

Gemma Ware in Port Louis •

FINANC E SPECIAL

S E P T E M B E R 2 013


COUNTRY FOCUS

MAURITIUS

MAURITIUS BANKS Financial institutions targeting offshore clients lead the sector, but local operations are gaining momentum

T

he Mauritian banking sector is firmly focused on the offshore market, but some of its international players are looking for business closer to home. Rundheersing Bheenick, governor of the Bank of Mauritius, says: “60% of the banking sector’s total assets are now offshore.” But he points out that only six of the country’s 21 banks are engaged predominantly in foreign banking, with the rest active in the domestic market (known as Segment A). Still, the offshore business (Segment B) represents more than half of banks’ deposit and loan books. Funds mobilised outside Mauritius account for 55% of total deposits, and 58% of loans granted are for offshore entities. The Mauritius Commercial Bank (MCB, #50) earns more than 40% of its profits from international operations. “The Segment A business has gained from the increased competition from

(June 2012-May 2013)

1.9%

Personal (payroll)

9.5%

Other

5.9%

Agriculture

6.8%

Manufacturing

7.3%

Tourism

Financial & business services

17.7%

10.1% ICT

0.5% Traders/Retailers

11.8%

Construction

26.7%

50 57 66 69 72 93 134 138 141

THE MAURITIUS COMMERCIAL BANK HSBC MAURITIUS STANDARD CHARTERED BANK MAURITIUS STATE BANK OF MAURITIUS BARCLAYS BANK MAURITIUS LIMITED STANDARD BANK MAURITIUS SBI MAURITIUS INVESTEC BANK MAURITIUS* DEUTSCHE BANK MAURITIUS

5 503 4 447 3 427 3 130 2 957 2 274 1 218 1 161 1 138

141 66 31 83 34 ( 13 ) 10 26 3

154

HONG KONG SHANGHAI BANKING CORP*

949

8

2012 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2011 RESULTS

the B players,” says Aisha Timol, chief executive of the Mauritius Bankers Association. International banks like Standard Chartered (#66), which have been hitherto focused on wholesale offshore banking largely to India, entered the domestic economy for the first time in 2013. Standard Chartered is setting itself up as a hub as part of a strategic repositioning towards other African countries that has led the bank to invest $55m in people, processes and systems in Mauritius since 2009. In late March, MCB announced a restructuring plan to separate its banking and non-banking activities as subsidiaries under a new holding company. As part of a Rs5bn ($161m) capital-raising plan, the bank launched a Rs3bn bond in June that rose to R4.5bn due to oversubscription. The restructuring came after the central bank indicated it would like to see the larger domestic banks create

Banks’ distribution of credit to private sector Infrastructure

PROFITS ($m)

Offshore is on top

BANK

TOTAL ASSETS ($m)

TOP 10 MAURITIUS BANKS* RANK IN TOP 200

78

Transport

1.8%

Mauritian banks have benefited from diversifying their loan bases in line with the country’s diversified economy. A boom in the construction sector, led by new expatriate housing schemes, has seen some banks burnt as demand for luxury housing fell with the economic fortunes of the eurozone. Bank managers admit that they are now cautious about their lending to the real estate sector.

holding companies. The Bank of Mauritius is also pushing international banks to set up local subsidiaries rather than branches. As a result, Barclays has been operating as Barclays Bank Mauritius Limited (#72) since June. AFRICAN EXPANSION

The newer banks are following the double-act of MCB and the State Bank of Mauritius (#69) into the subregion. AfrAsia Bank (#175), which conglomerate GML set up in 2007, bought a minority share in Zimbabwe’s Kingdom Financial Holdings in 2012. It rebranded the bank – which has a commercial bank, microfinance and asset management businesses and branches in Malawi and Botswana – as AfrAsia Kingdom Zimbabwe. “We’re still quite under-geared as a bank,” says AfrAsia’s chief executive James Benoit, indicating that the bank has a 50% loan-to-deposit ratio. He says it would expand both its domestic and international loan books by 25% in the next 12 months. “We see this as a prime opportunity to take market share where other banks may be hurt or raising capital,” he explains. The country’s newest bank, BanyanTree Bank, operated by India’s BanyanTree Group, opened in February 2013, and the central bank is keen to attract more international banks. “Leading Chinese and Indian banks have enquired about the prospects of operating in Mauritius,” says Bheenick, indicating that they would be welcome “if they can prove to have viable business models of interest to us”. ● Gemma Ware in Port Louis *Turn to page 82 for our exclusive ranking of Africa’s top 200 banks.

THE AFRICA REPORT

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COUNTRY FOCUS

80

MAURITIUS

WHERE TO GO OUT

Relaxing in a banker’s paradise When the markets close the fun begins, with beachside cocktails, sophisticated dining, mountain hideaways or nightclubbing among the choices in the island’s four main areas Port Louis With a bustling downtown area, the capital has a host of lunchtime spots. Grab a bite or indulge in some shopping at Le Caudan Waterfront, home to two business hotels, Le Labourdonnais and Le Suffren, which are connected by a short boat ride across the harbour. You can head to Le Suffren on Friday evenings for happy hour. Port Louis is quiet come nightfall, but the Lambic bar and restaurant on St. Georges Street is a popular option.

Grand Baie Drive half an hour north of Port Louis to let your hair down overlooking the ocean. You can eat fresh fish and lobster at the Hôtel 20ºSud or savour Italian chef Max’s pizzas at Mamma Mia on Royal Road towards Pointe Aux Canonniers. Or, if you have for a meal where you need to impress, book a table at the Natureaty or La Goelette restaurants at the Royal Palm Hotel. On the weekend, bankers can be found hanging out at The Beach House, run by South African former rugby player Cabous Van Der Westhuizen. With happy hour every day from 5-8pm and live music on the weekends, Banana Beach Club is another happening spot, with the Kamikaze nightclub out back. For more dancing, head to Buddha Club or try the new OMG nightclub.

Ebène

ALL PICTURES: ALL RIGHTS RESERVED

Rivière Noire South of Port Louis on the western coast, Rivière Noire includes the beach resorts of Tamarin and Flic en Flac. It is home to new ex-pat integrated resort schemes such as La Balise Marina and Tamarina – where houses sell for $1-2m – and its restaurants and bars cater for fine tastes. Balikopy in La Mivoie is a sought-after dining choice in a Balinese atmosphere. Take a break from the coast up in the mountains, where you can eat French fare with beautiful views at Le Chamarel or hobnob with celebrities at Varangue Sur Morne in an old gamekeeper’s lodge. For a lively end to your evening, head to Big Willy’s bar back in Tamarin to watch sporting events or dance.

A couple of minutes drive from the high-rises of Ebène’s CyberCity is the Bagatelle Mall of Mauritius. A busy food court has a range of Mauritian and international dining options, including the Flying Dodo Brewing Company and the Talking Drums Flame Grill. There is also a cinema with a good range of new releases. For after-work drinks closer to the office, head to the Backstage bar at the Hennessy Park Hotel in the centre of Ebène, where you can also eat Mauritian and Japanese fusion cuisine at the Grain d’Sel restaurant.

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82

TOP 200 BANKS RANKINGS

Banking for growth Despite the lingering effects of the global downturn and continuing postArab Spring instability in North Africa, Africa’s banks are expanding their reach and financial strength

By Gemma Ware

W

hile it may be riding on the back of a prolonged African economic upswing, the continent’s banking sector – dominated by Southern and North Africa – is still in recovery mode. Alongside innovations in banking led by mobile technology and agency banking models in East Africa, structural problems persist, including a paucity of long-term capital and an addiction to the easy returns of government treasury bills. The global financial slump was tailor-made to hit the South THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


African economy, where the mining, manufacturing and tourism sectors are struggling to grow in the face of troubles in the eurozone and fears over waning Asian demand for commodities. Political turbulence in North Africa has also depressed growth in the region, while in West Africa Nigerian banks are facing the prospect of having to wean themselves off high fees and find ways to cut costs. Set against this backdrop, 2012 was a year of recovery in our annual rankings of Africa’s Top 200 banks. After their total assets dropped slightly in 2011, the continent’s banks bounced back in 2012. THE AFRICA REPORT

FINANC E SPECIAL

The total assets of banks in our 2013 rankings, based on banks’ 2012 results, stood at $1.4trn, up 5.7% from 2011. In 2012,14bankspostednetinterestincome of more than $1bn, up from 10 banks at the $1bn mark in 2011. The longer-term story is one of sustained growth, with the assets of Africa’s Top 200 banks growing by 34% over the past five years. CENTRAL AFRICAN GROWTH

Over the same period, there has been 40% growth in the loan books of Africa’s Top 200 banks. However, at $748.9bn in 2012, it is still below 2010 levels. DeposS E P T E M B E R 2 013

its grew slightly slower, up 34% over the same period. Although still the smallest region in terms of bank size, the most pronounced growth was in Central Africa, where total loans more than doubled from $4.9bn in 2008 to $11.9bn in 2012. Central Africa has also recorded the biggest growth in deposit-taking, up 136% since 2008. Three of the top five biggest climbers by total assets in 2012 were from Central Africa (see graph). Some regions have seen a slower recovery than others. Total deposits in Southern African banks in our Top 200 rankings stagnated, registering an

JUNIOR D.KANNAH/AFP

83


TOP 200 BANKS

84

increase of less than 1% in 2012. Total loans for the region stood at $410.3bn, still below the $440.7bn of 2010. North African banks also recorded a dip in deposits, which were down 1%. Despite the prolonged political instability in the region, they continued to grow their asset bases, which increased 2.2% between 2011 and 2012. ROBUST PROFITS

Research by The Banker Database for 2013 shows that Africa’s banks are the most lucrative in terms of return on assets(ROA).Africanbankshave2.1%ROA, compared to 2% for Central and Eastern Europe. High fees and good returns on government debt have led to robust

profits. But some African regulators are pushing banks to treat consumers better. “Regulators have become more aggressive in bringing out new legislation

banks to operate more efficiently and to cut down their costs, says Pera. He identifies worrying signs, like the higher level of impairments that banks are reporting, particularly in South Africa, where he says the level of High fees and charges bring consumer indebtedness is a high return on assets, but impacting growth. at the consumer’s expense Regulators are also becomingstricteraboutcapital or regulations to protect the consumer requirements. “In many African counand force banks to reduce the charges tries the banking regulators are trying to and fees and the margins for lending,” increase the minimum level of capital. says Emilio Pera, a partner specialised Some went very far, asking for very large in financial services at accountancy firm amounts on the basis that it would help Ernst & Young in South Africa. He points local banks finance infrastructure and to South Africa, Tanzania and Nigeria in other projects,” says Jean-Louis Ekra, particular. The impact will be to force president of the African Export-Import

5 biggest gainers in 2012 105.8%

% change

Total Assets 2012

103.3% 82.7%

66.4% $0.86bn BGFI BANK GUINÉE EQUATORIALE (Equatorial Guinea)

$0.81bn

58.4%

$0.62bn

$1.41bn

FÉDÉRATION DES MUCODEC (Rep. of Congo)

ORAGROUP SA (Togo)

FIRST CITY MONUMENT BANK (Nigeria)

COMMERCIAL BANK OF AFRICA (Kenya)

STANDARD CHARTERED BANK MAURICE (Mauritius)

BANQUE EXTÉRIEURE D'ALGÉRIE (Algeria)

HOUSING AND DEVELOPMENT BANK (Egypt)

$1.37bn

$29.55bn

$2.07bn

-16.4%

-14.7%

$1.04bn -10.6%

STANDARD CHARTERED BANK CAMEROON (Cameroon)

$5.81bn

5 biggest losers in 2012 SOCIÉTÉ GÉNÉRALE SOUTH AFRICA (South Africa) SOURCE: GJA TOP200 BANKS

$0.72bn

Total Assets 2012

-32.6%

% change

-49.3%

Top 200 asset breakdown

Southern Africa

Total bank assets

North Africa

West Africa

Central Africa

$1.448trn

East Africa

$1.368trn

$1.375trn $1.199trn

SOURCE: GJA TOP200 BANKS

$1.077trn

32% 34%

48%

34%

2008

1%

49%

52%

32% 48%

52% 12%

10%

14% 3%

33%

2009

1%

2010

4%

3%

3% 3%

14%

14%

1%

1%

2011 THE AFRICA REPORT

FINANC E SPECIAL

2012 •

2%

S E P T E M B E R 2 013


TOP 200 BANKS

Bank (#194) (Afreximbank). Higher capital requirements also encourage consolidation. In Tanzania, where there are 52 banks, the government is raising capital requirements for community banks from TSh250m ($155,000) to TSh2bn by 2017, while commercial banks will have to meet a target of TSh15bn. Zimbabwe is also raising capital requirements to $100m, which Pera suggests could be aimed at ensuring banks have enough capital to cover the costs of the Basel II banking regime that the country is implementing. Raising long-term capital from abroad remains difficult for many African banks. This means they will struggle to meet the demand for long-term lending for infrastructure finance and consumer

mortgages. Most of the deposits in African banks are short-term and thus ill-suited to be set against a 15-year mortgage. This asset/liability mismatch may slowly be reduced by the growth of local pension funds and by banks tapping eurobond markets. The World Bank and other international financial institutions are also trying to bridge the gap (see page 22). SME LOANS GAIN MOMENTUM

This difficulty in accessing long-term finance is also limiting banks’ abilities to extend credit to small and medium-sized enterprises(SMEs).Inanefforttoincrease the volume of credit for SMEs, the International Finance Corporation (IFC) has focused on providing long-term credit to

banks. Kariuki Thande, who works on financial markets at the IFC in Kenya, says that out of current commitments of $530m to 39 financial institutions in East Africa, $450m are loans for SME financing. “SME financing has picked up steam quite well in the past five or so years, it’s gathering momentum,” says Thande. “It’s proving to be quite commercially attractive in terms of the margins the banks can make there.” Yet challenges remain. “The big issues are lack of quality information and inadequate guarantees,” says Manzi Rwegasira, chief executive of mobile payment firm Zoop, who has written a report on the Tanzanian banking sector for Dar es Salaam-based Serengeti ● ● ●

Total loans $1,200bn

% growth over

$1,000bn

Total deposits West Africa

North Africa

five years

Central Africa

East Africa

Southern Africa

26.6%

35.2%

55.5%

$800bn

$200bn

2008

2009

2010

2012 36.9%

2011

Banks’ branch expansion by country (%)

2008

2009

2010

2011

2012 28.3%

Coverage and expansion of bank branch networks

Vietnam

15

Côte d’Ivoire Kenya

10

South Africa

Indonesia

Cameroon 5 Benin

Algeria Nigeria Senegal

Madagascar

Ghana

Thailand Egypt

Mali

-5

0

THE AFRICA REPORT

India Argentina Ukraine

10

FINANC E SPECIAL

S E P T E M B E R 2 013

Brazil

Morocco Czech Republic

Tunisia China

Turkey

Chile

Macedonia

Mexico Bosnia and Herzegovina

20

Slovakia Russia No. of branches per 100,000 adults

SOURCE: DEVLHON CONSULTING (EMERGING BANKING BENCHMARK)

Cambodia

20

-10

76.9%

74.2%

0

0

136.4%

142%

$400bn

SOURCE: GJA TOP200 BANKS

56.1%

$600bn

25

85


TOP 200 BANKS

NABIL ZORKOT

86

Advisers. Rwegasira laments the lack of innovation in the SME lending sector, with standardised products based mainly on collateralised lending. In the meantime, interest rates on loans remain higher than 20% across much of Africa. Managing these rates is complicated for large corporates, so they can be crippling for SMEs. The spread of credit reference bureaus could help to bring down the risks associated with unsecured lending. But rates are mostly driven by macroeconomic factors, particularly the high interest rate on government treasury bonds, a quick and easy way for bankers to make money instead of risky lending to small businesses. Some countries are trying radical methods to correct this. In Sierra Leone, the government has decided to stop borrowing domestically, a strategy that pulled treasury bill rates that had stood at more than 20% down to less than 10% in June. The government insists that this will make banks lend to the private sector. The central bank governor Sheku Sesay says there are signs it is working, but sustaining these low rates will be a challenge. With economic growth also driven by emerging consumer classes, banks are looking at new ways to reach these customers. Comparisons by Paris-based DEVLHON Consulting show that most African countries had around five branches per 100,000 adults in 2011 and are now expanding at a low rate. In Africa, only Morocco, Tunisia and South Africa have more than 10 branches per 100,000 adults (see graph). In East Africa, innovations such as agency banking – ●●●

Agency banking is quickly overtaking ATMs and branch transactions on the continent

where banks partner with third parties, such as mobile airtime sellers, to offer basic services – is encouraging financial inclusion without the capital expenditure of branch expansion. A report from the Central Bank of Kenya says that since the launch of agency banking in 2010, just under 20,000 agents are now offering services for 13 commercial banks and have facilitated 59m transactions totalling KSh310.5bn ($3.5bn). RISE OF AGENCY BANKING

Kenya’s Equity Bank (#75) allows customers to set up an account, to deposit and withdraw cash and to pay utility bills through its partners. In its results for the first half of 2013, it said agency

banking is now its most popular banking channel – overtaking ATM and branch transactions. In Tanzania, the government established guidelines on agency banking in September 2012. CRDB Bank (#101) launched its agency banking network Fahari Huduma this June. The network uses petrol stations and the Tanzania Posts Corporation as third parties for transactions. Alongside this consumer-led growth, banks are focusing on the more structural shifts necessary for the continent’s economies to grow. Afreximbank’s Ekra says that while total trade has grown fivefold in the past 10 to 15 years, “it’s still dominated by commodities […] which puts countries at risk. We need five to seven years to transform [the] export base, that’s what has been driving our five-year bond [issues],” he says. But banks are keeping a keen eye on what is happening in emerging markets as the United States Federal Reserve talks about beginning to taper off its programme of quantitative easing (QE, see Editorial, page 4). The South African rand fell to a four-year low against the US dollar in mid-August. “Obviously that has an impact on any corporate or bank operating in that environment,” says Ernst & Young’s Pera, pointing to the currency risk facing banks that have clients doing cross-border operations. Even in the cheap money era of QE, it has been difficult for banks to access long-term capital. Now, with pressure on emerging markets, those African bankers without solid credit lines could find themselves relying even more heavily on development finance institutions to fund their expansions. ●

Methodology how we calculated the figures for the Top 200 Banks TO COMPILE OUR RANKING of Africa’s Top 200 banks, we sent out detailed questionnaires to more than 700 financial institutions based on the continent. We used their replies to create a systematic ranking of Africa’s top banks based on total asset size. We publish only

the Top 200 banks in our list. All the data is communicated to us by the banks themselves or their parent companies. The numbers relate to the 2012 financial year. Where that information was unavailable, we used 2011 figures, which are marked as such.

THE AFRICA REPORT

The data was converted to US dollar amounts using the exchange rates applicable on 12 December 2012 to allow for a consistent comparison. Numbers in the ‘Rank 2011’ column refer to a bank’s position in the ranking published by The Africa Report in September 2012. ●

FINANC E SPECIAL

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Brigitte

Patrick Pediatrician

Francis Student

Hotel-keeper

“Now I’ve got enough room to take care of babies as well as older children.”

“The BGD let me boost my accommodation capacity.”

Laurxent Pharmacist

“The BGD enabled me to fill my pharmacy with drugs.”

Ange

School principal

The Gabonese Development Bank (BGD) contributes to Gabon’s future and economic development by financing the projects of motivated entrepreneurs. Located throughout the country, the BGD supports businesses, local authorities and private individuals at every step of their private and professional lives.

Jean-Joseph

“The ice cream business allowed me to go back to school.”

Jean-Paul

Owner of a timber company

“My factory has really shifted into high gear and I’ve created new jobs.”

Chrystel

Veterinarian

Owner of a small cleaning business

“The BGD’s trust allowed me to grow my company and hire compatriots.”

At the heart of development Banque Gabonaise de Développement, Société Anonyme d’intérêt National ● ●

Head office: Rue Alfred Marche ● Libreville, Gabon ● RCCM: 2005 B 04382 ● NIF: 790 381 / R Statistical number: 90 381 L ● Tel.: (+241) 76 24 29 - Fax: (+241) 74 26 99 ● Web site:www.bgd-gabon.com

© DIFCOM / CC - Paris 16

“The BGD helped me start my practice.”

“My little school has become a real educational complex.”


TOP 200 BANKS

DIFF.

RANK '12

RANKINGS 2013 1-40 RANK '13

88

Standard Bank (#1) had 13.5 million retail customers across Africa in 2012, up from 12.1 million in 2011. R930bn is held in current or deposit accounts. 1.7 million previously unbanked customers were added in the year.

BANK NAME

LOANS

DEPOSITS

1

1

- STANDARD BANK GROUP

SOUTH AFRICA

181 940 000

4 007 647

95 572 167

108 221 558

2

2

- STANDARD BANK OF SOUTH AFRICA

SOUTH AFRICA

115 347 312

5 688 467

77 702 290

84 588 162

3

3

- ABSA GROUP

SOUTH AFRICA

95 191 373

5 520 103

62 231 464

56 250 449

4

5

+1 FIRSTRAND BANKING GROUP

SOUTH AFRICA

90 693 712

1 981 379

61 797 415

71 432 027

5

4

-1 NEDBANK GROUP

SOUTH AFRICA

80 468 586

2 318 698

62 110 698

64 904 446

6

6

- NATIONAL BANK OF EGYPT

EGYPT

51 189 290

1 562 463

15 169 521

44 397 227

7

7

- ATTIJARIWAFA BANK

MOROCCO

43 680 958

2 022 004

29 368 692

26 924 459

8

10

MOROCCO

32 192 191

1 364 493

21 846 120

23 946 882

9

9

EGYPT

29 912 080

634 541

6 920 466

25 880 259

+2 GROUPE BCP (EX-CRÉDIT POP. DU MAROC) - BANQUE MISR

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

10

8

-2 BANQUE EXTÉRIEURE D'ALGÉRIE

ALGERIA

29 548 000

570 000

16 386 000

22 832 000

11

12

+1 BANQUE MAROCAINE DU COMMERCE EXTÉRIEUR

MOROCCO

27 383 435

1 069 535

17 155 609

16 462 747

12

11

-1 FIRST NATIONAL BANK SOUTH AFRICA

SOUTH AFRICA

27 019 543

982 383

-

-

13

13

- BANQUE NATIONALE D'ALGÉRIE

ALGERIA

25 792 198

803 164

14 199 759

16 591 485

14

21

+7 ECOBANK TRANSNATIONAL INC.

TOGO

19 950 335

855 013

9 440 945

14 620 478

15

15

NIGERIA

17 704 607

1 652 160

8 411 841

13 877 847

16

17

+1 ZENITH INTERNATIONAL BANK

NIGERIA

16 642 781

1 001 677

6 482 821

12 327 869

17

18

+1 ZENITH BANK NIGERIA

NIGERIA

15 571 702

1 337 395

5 721 312

11 514 831

18

16

-2 COMMERCIAL INTERNATIONAL BANK

EGYPT

14 970 861

623 206

6 480 800

12 536 825

19

14

-5 UNITED BANK FOR AFRICA GROUP

NIGERIA

14 523 978

585 433

4 210 512

10 990 851

20

-

- CAISSE NATIONALE D'ÉPARGNE ET DE PRÉVOYANCE* ALGERIA

13 125 028

138 862

4 538 146

12 046 989

21

19

-2 CRÉDIT POPULAIRE D'ALGÉRIE

ALGERIA

12 399 320

337 489

5 834 570

9 053 988

22

20

-2 BANQUE DE L'AGRICULTURE ET DU DÉV. RURAL*

ALGERIA

12 074 310

-

-

-

23

24

+1 ACCESS BANK GROUP

NIGERIA

11 151 683

615 854

3 860 029

7 677 470

24

25

+1 GUARANTY TRUST BANK

NIGERIA

11 085 870

1 149 586

5 009 216

7 489 447

25

28

+3 BANCO ANGOLANO DE INV. (EX-BANCO AFRICANO)

ANGOLA

10 763 890

579 146

2 678 636

8 486 270

26

22

-4 NATIONAL SOCIÉTÉ GÉNÉRALE BANK

EGYPT

10 653 799

-

-

-

27

23

-4 UNITED BANK FOR AFRICA NIGERIA*

NIGERIA

10 081 782

377 105

3 632 423

7 408 266

28

26

-2 SOCIÉTÉ GÉNÉRALE MAROC (EX-SGMB)

29

-

30

30

31

29

-2 HSBC BANK EGYPT

32

27

33

31

- FIRST BANK OF NIGERIA

MOROCCO

9 407 471

480 804

7 629 538

6 030 336

- FONDS NATIONAL D'INVESTISSEMENT (EX-BAD)*

ALGERIA

9 185 836

54 446

6 467 360

-

- BANCO ESPIRITO SANTO ANGOLA*

ANGOLA

8 895 678

-

-

-

EGYPT

8 590 114

486 436

3 119 956

7 522 132

-5 BANQUE MAROCAINE POUR LE COMM. ET L'IND.

MOROCCO

8 392 255

374 831

6 714 877

6 229 935

-2 ARAB AFRICAN INTER

EGYPT

8 197 044

202 299

3 412 043

5 970 838

- BANQUE DU CAIRE*

34

-

EGYPT

8 144 360

-

-

-

35

32

-3 BANCO DE FOMENTO ANGOLA

ANGOLA

7 924 446

392 873

1 423 846

6 955 060

36

45

+9 DIAMOND BANK

NIGERIA

7 528 083

570 765

3 739 429

5 816 398

37

37

- AFRICAN BANK

SOUTH AFRICA

6 962 859

1 124 455

6 495 034

2 852 491

38

47

ANGOLA

6 914 226

176 552

2 578 540

5 473 426

39

64 +25 ECOBANK NIGERIA*

NIGERIA

6 890 767

335 174

2 512 426

5 462 030

40

41

NIGERIA

6 861 761

284 368

3 453 028

5 048 688

+9 BANCO BIC

+1 SKYE BANK

2012 RESULTS IN THOUSANDS OF US DOLLARS – * IN ITALICS 2011 RESULTS THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

Without doubt, [Nigeria’s] growing headcount presents an increasing opportunity for the banking industry.”

RANKINGS 2013 41-80

DIFF.

RANK '12

Reginald Ihejiahi, CEO of Nigeria’s Fidelity Bank (#46)

RANK '13

90

BANK NAME

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

LOANS

DEPOSITS

41

33

-8 UNION BANK OF NIGERIA

NIGERIA

6 601 170

429 964

1 053 909

3 338 411

42

36

-6 BANK OF ALEXANDRIA

EGYPT

6 546 693

328 258

3 092 471

5 329 245

43

38

-5 FAISAL ISLAMIC BANK OF EGYPT

EGYPT

6 541 611

264 492

3 237 946

5 936 868

44

50

+6 COMMERCIAL BANK OF ETHIOPIA*

ETHIOPIA

6 535 620

-

-

4 959 045

45

72 +27 BGFIBANK HOLDING CORP.

GABON

6 081 146

383 058

3 459 425

5 025 145

46

61 +15 FIDELITY BANK

NIGERIA

5 842 761

486 713

2 293 267

4 580 026

47

56

+9 FIRST CITY MONUMENT BANK

NIGERIA

5 805 607

276 938

2 286 334

4 129 325

48

39

-9 ACCESS BANK NIGERIA*

NIGERIA

5 760 937

294 307

2 820 474

3 182 632

49

42

-7 CRÉDIT DU MAROC

MOROCCO

5 669 025

249 901

4 227 676

4 023 468

50

43

-7 THE MAURITIUS COMMERCIAL BANK

MAURITIUS

5 503 007

301 602

4 038 483

4 375 636

51

48

-3 BANQUE INTERNATIONALE ARABE DE TUNISIE

TUNISIA

5 105 131

246 166

3 353 409

4 087 522

52

52

TUNISIA

5 050 731

189 288

4 105 972

3 364 002

53

44

-9 GROUPE BANK OF AFRICA*

MALI

4 899 379

333 664

2 371 918

3 675 173

54

49

-5 SOCIÉTÉ TUNISIENNE DE BANQUE*

TUNISIA

4 675 940

147 093

3 730 379

3 482 129

55

68 +13 CAPITEC BANK

SOUTH AFRICA

4 518 011

638 848

3 291 285

3 416 803

56

51

EGYPT

4 471 680

158 638

2 036 141

3 624 382

57

46

-11 HSBC MAURITIUS

MAURITIUS

4 446 527

76 142

2 716 470

4 023 025

58

59

+1 STANBIC IBTC CHARTERED BANK

NIGERIA

4 324 873

430 750

1 701 938

2 271 127

59

53

-6 KENYA COMMERCIAL BANK GROUP

KENYA

4 254 252

354 768

2 451 072

3 335 473

60

55

-5 AMEN BANK

TUNISIA

4 234 095

129 913

3 197 775

2 833 748

61

54

-7 CRÉDIT IMMOBILIER ET HÔTELIER

62

62

- BANQUE NATIONALE AGRICOLE

-5 CRÉDIT AGRICOLE EGYPT

MOROCCO

4 077 116

162 130

3 223 463

2 195 343

- STERLING BANK

NIGERIA

3 707 644

152 682

1 465 999

2 963 211

- ARAB BANK FOR ECONOMIC DEV. IN AFRICA

63

-

SUDAN

3 699 303

177 636

-

-

64

57

-7 BANQUE DE L'HABITAT DE TUNISIE*

TUNISIA

3 635 202

125 061

2 830 281

2 214 347

65

60

-5 KENYA COMMERCIAL BANK

KENYA

3 524 629

321 856

2 165 722

2 588 052

66

58

-8 STANDARD CHARTERED BANK MAURITIUS

MAURITIUS

3 426 600

53 023

1 075 143

624 827

67

65

-2 BANK AUDI EGYPT

EGYPT

3 425 000

107 300

1 528 000

2 642 000

68

78 +10 AFRILAND FIRST GROUP

CAMEROON

3 150 593

218 820

1 421 607

2 304 405

69

75

+6 STATE BANK OF MAURITIUS

MAURITIUS

3 130 116

101 399

1 974 069

2 414 228

70

73

+3 LAND AND AGRI. DEV. BANK OF SOUTH AFRICA*

SOUTH AFRICA

3 122 598

83 031

2 647 464

-

71

71

TUNISIA

2 967 811

102 094

1 611 272

2 284 756

72

66

-6 BARCLAYS BANK MAURITIUS LIMITED

MAURITIUS

2 957 008

90 060

1 120 912

2 308 457

73

70

-3 ATTIJARI BANK TUNISIE

TUNISIA

2 862 638

140 218

2 093 962

2 315 447

74

67

-7 ALWATANY BANK OF EGYPT

EGYPT

2 862 149

99 920

1 153 129

2 123 598

75

83

+8 EQUITY BANK GROUP

KENYA

2 815 909

277 272

1 571 313

1 944 433

76

-

- STANDARD CHARTERED BANK NIGERIA

NIGERIA

2 773 618

-

-

1 519 657

77

-

- SUEZ CANAL BANK

EGYPT

2 717 490

-

-

-

78

74

-4 BNP PARIBAS EGYPT*

EGYPT

2 683 036

122 156

1 157 987

2 118 401

79

76

-3 AL BARAKA BANK EGYPT

EGYPT

2 671 783

10 050

-

2 293 920

80

81

+1 BNP PARIBAS EL DJAZAIR

ALGERIA

2 593 702

165 635

1 021 384

1 944 843

- ARAB TUNISIAN BANK

2012 RESULTS IN THOUSANDS OF US DOLLARS – * IN ITALICS 2011 RESULTS THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

The strain that the consumer is experiencing on the back of job losses has impacted debt serviceability levels.”

RANKINGS 2013 81-120

DIFF.

RANK '12

Lorato Boakgomo-Ntakhwana, CEO, First National Bank of Botswana (#106)

RANK '13

92

BANK NAME

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

LOANS

DEPOSITS

81

89

+8 SOCIÉTÉ ARABE INTERNATIONALE DE BANQUE

EGYPT

2 588 087

92 119

716 170

2 041 556

82

85

+3 SOCIÉTÉ GÉNÉRALE ALGÉRIE

ALGERIA

2 535 112

192 545

1 289 134

201 860

92

+9 BGFIBANK GABON

GABON

2 531 267

130 137

1 627 175

2 024 922

102 +18 AHLI UNITED BANK EGYPT

EGYPT

2 484 575

-

1 187 370

-

TUNISIA

2 414 850

104 028

1 909 503

1 571 908

83 84 85

84

86

98 +12 ATLANTIQUE BUSINESS INT. (EX-ATL. FIN. GROUP)

CÔTE D'IVOIRE

2 411 636

-

1 131 755

1 685 459

87

82

-5 BANCO INTERNACIONAL DE MOÇAMBIQUE

MOZAMBIQUE

2 374 433

250 699

1 284 920

1 859 355

86

-2 FIRST NATIONAL BANK OF NAMIBIA

NAMIBIA

2 330 391

104 853

1 669 842

1 967 826

KENYA

2 325 264

184 701

1 379 178

1 879 434

88 89

-1 BANQUE DE TUNISIE

109 +20 EQUITY BANK KENYA

90

80

-10 ABU DHABI ISLAMIC BANK EGYPT (EX-NBD)

EGYPT

2 297 680

-

-

2 064 233

91

79

-12 UNITY BANK*

NIGERIA

2 289 415

128 794

692 199

1 625 522

95

+3 BANCO COMERCIAL E DE INVESTIMENTOS

MOZAMBIQUE

2 288 647

146 910

1 261 372

1 686 285

MAURITIUS

2 274 479

18 982

408 523

1 539 402

92 93

116 +23 STANDARD BANK MAURITIUS

94

103

+9 STANDARD CHARTERED BANK KENYA

KENYA

2 265 659

159 135

1 305 003

1 627 278

95

87

-8 EXPORT DEVELOPMENT BANK OF EGYPT

EGYPT

2 222 421

-

-

-

96

94

-2 BANK WINDHOEK

NAMIBIA

2 190 883

92 378

1 826 912

1 434 670

97

90

-7 UNION INTERNATIONALE DE BANQUES

TUNISIA

2 171 552

103 653

1 758 182

1 734 668

98

77

-21 HOUSING AND DEVELOPMENT BANK

EGYPT

2 070 801

106 540

917 244

1 295 185

99

96

-3 COMMERCIAL BANK OF ERITREA*

ERITREA

2 032 006

35 308

64 870

1 897 740

100

93

-7 CO-OPERATIVE BANK OF KENYA*

KENYA

1 947 366

143 116

1 265 860

1 650 256

101

110

+9 CRDB BANK

TANZANIA

1 937 134

129 954

1 138 325

1 632 351

102

88

-14 BARCLAYS BANK OF KENYA*

KENYA

1 932 526

189 008

1 146 263

1 437 075

ALGERIA

1 887 866

103 741

724 795

1 458 768

REP. OF CONGO

1 839 610

86 864

604 966

1 703 642

-8 BANCO MILLENNIUM ANGOLA

ANGOLA

1 827 232

87 334

642 575

1 227 920

-5 FIRST NATIONAL BANK OF BOTSWANA

BOTSWANA

1 800 690

80 613

1 066 716

1 449 630

EQUATORIAL GUINEA

1 798 960

129 832

841 167

1 458 701

SOUTH AFRICA

1 765 533

5 538

-

-

103 104

99

-4 BANQUE AL-BARAKA D'ALGÉRIE

115 +11 BGFIBANK CONGO

105

97

106

101

107

122 +15 CCEI BANK GE

108

-

- INVESTEC BANK SOUTH AFRICA

109

121 +12 NATIONAL MICROFINANCE BANK

TANZANIA

1 761 403

232 801

847 937

1 442 687

110

127 +17 AFRICAN BANKING CORP. HOLDING

BOTSWANA

1 725 579

142 982

1 176 808

1 973 887

111

126 +15 BANCO DE NEGOCIOS INTERNACIONAL

ANGOLA

1 692 075

59 572

791 280

1 305 516

112

123 +11 INVESTMENT & MORTGAGES BANK

KENYA

1 675 916

75 972

1 017 131

1 294 094

113

100

KENYA

1 658 397

75 765

766 015

867 420

114

105

-9 UNION BANCAIRE POUR LE COMMERCE ET L'IND.

TUNISIA

1 645 988

81 682

1 321 703

1 191 029

115

111

-4 SOCIÉTÉ GÉNÉRALE DE BANQUES EN CÔTE D'IVOIRE

CÔTE D'IVOIRE

1 604 905

120 475

860 318

1 325 470

116

134 +18 HSBC ALGÉRIE

117

124

118

114

119

108

120

91

-13 CFC STANBIC BANK

ALGERIA

1 573 345

61 057

356 106

1 279 505

+7 DIAMOND TRUST BANK KENYA

KENYA

1 568 643

142 671

1 015 650

1 238 773

-4 GHANA COMMERCIAL BANK

GHANA

1 556 858

214 589

444 141

1 222 938

-11 BANK OF KHARTOUM

SUDAN

1 537 026

102 046

804 979

1 149 126

-29 PIRAEUS BANK*

EGYPT

1 498 286

-

-

-

2012 RESULTS IN THOUSANDS OF US DOLLARS – * IN ITALICS 2011 RESULTS THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

RANK '12

DIFF.

RANKINGS 2013 121-160 RANK '13

94

121

106

-15 MISR IRAN DEVELOPMENT BANK

122

113

123

118

124

170 +46 ORAGROUP SA

125

120

126 127 128

136

129

-

130

128

131

145 +14 NIC BANK

132

129

133

-

134

125

135

107

136

130

137

131

138

153 +15 INVESTEC BANK MAURITIUS*

139

137

140

138

141 142

32%

increase in profits for Egyptian Gulf Bank (#126) in the first six months of 2013, to E£100.7m ($14.4m) net profit before taxes. The bank has said that it is targeting E£178m net profit for 2013.

BANK NAME

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

LOANS

DEPOSITS

EGYPT

1 490 520

32 262

603 997

985 685

-9 BARCLAYS BANK OF BOTSWANA

BOTSWANA

1 467 701

121 751

797 701

1 161 202

-5 FAISAL ISLAMIC BANK SUDAN*

SUDAN

1 416 629

136 597

-

414 351

TOGO

1 409 854

107 107

873 697

982 034

ANGOLA

1 395 441

60 370

343 887

1 241 175

141 +15 EGYPTIAN GULF BANK

EGYPT

1 372 011

-

-

-

146 +19 COMMERCIAL BANK OF AFRICA

KENYA

1 369 922

61 419

596 219

1 061 312

GHANA

1 345 990

153 788

536 515

1 015 249

ALGERIA

1 317 596

119 728

809 410

819 551

SENEGAL

1 287 226

99 704

945 205

1 019 798

KENYA

1 254 677

63 503

828 434

965 535

GHANA

1 252 312

88 916

502 666

892 710

ZIMBABWE

1 223 093

95 338

854 690

1 032 352

MAURITIUS

1 218 160

23 050

768 770

910 700

BOTSWANA

1 185 454

73 129

634 336

924 655

-6 SOCIÉTÉ GÉNÉRALE DE BANQUES AU CAMEROUN

CAMEROON

1 182 501

90 155

-

-

-6 BANQUE INT. POUR L'ÉPARGNE ET LE CRÉDIT

CAMEROON

1 168 509

93 740

605 607

921 931

MAURITIUS

1 160 902

34 115

724 764

397 730

-2 AFRILAND FIRST BANK

CAMEROON

1 152 630

50 137

483 254

929 945

-2 STANBIC BANK UGANDA

UGANDA

1 146 480

109 776

540 303

776 697

139

-2 DEUTSCHE BANK MAURITIUS

MAURITIUS

1 137 646

3 143

508 192

810 405

133

-9 SOCIÉTÉ GÉNÉRALE DE BANQUES AU SÉNÉGAL*

SENEGAL

1 137 256

86 630

945 216

859 520

143

147

+4 ZAMBIA NATIONAL COMMERCIAL BANK

ZAMBIA

1 104 290

135 768

510 283

819 834

144

149

+5 NATIXIS ALGÉRIE

ALGERIA

1 096 652

79 903

623 446

672 337

145

135

-10 BANK OF AFRICA – BÉNIN*

BENIN

1 064 331

61 040

425 212

738 150

146

132

-14 BARCLAYS BANK OF GHANA

GHANA

1 035 209

107 252

371 355

761 799

147

152

+5 ECOBANK CÔTE D'IVOIRE*

CÔTE D'IVOIRE

1 012 502

77 175

640 813

688 015

148

-

- ARAB BANKING CORP. (EGYPT)

EGYPT

996 365

47 780

339 181

816 423

149

-

- STANDARD CHARTERED BANK ZAMBIA

ZAMBIA

981 087

61 122

424 320

699 395

- STANBIC BANK ZAMBIA

-5 BANCO SOL*

+8 ECOBANK GHANA* - GULF BANK ALGÉRIE -2 CBAO GROUPE ATTIJARIWAFA BANK

-3 STANDARD CHARTERED BANK GHANA - CBZ BANK -9 SBI MAURITIUS -28 STANDARD CHARTERED BANK BOTSWANA

150

-

ZAMBIA

956 823

116 595

515 030

736 790

151

144

-7 NATIONAL BANK OF COMMERCE

TANZANIA

956 196

61 136

412 301

813 541

152

148

-4 BIAO CÔTE D'IVOIRE

CÔTE D'IVOIRE

952 879

66 762

572 553

715 365

153

150

-3 DASHEN BANK

ETHIOPIA

951 689

25 424

431 810

764 043

154

143

MAURITIUS

948 805

19 675

473 576

721 049

155

-

- STANDARD CHARTERED BANK UGANDA

UGANDA

912 205

155 242

471 620

630 355

156

154

-2 BANQUE DE DÉVELOPPEMENT DU MALI

MALI

907 869

50 978

402 251

747 382

157

169 +12 BANCO REGIONAL DO KEVE

ANGOLA

895 529

19 360

304 988

737 069

158

157

-1 BANQUE ATLANTIQUE - CÔTE D'IVOIRE

CÔTE D'IVOIRE

879 238

48 513

251 097

763 159

159

160

+1 UNION NATIONAL BANK EGYPT

EGYPT

866 538

-

-

-

160

-

EQUATORIAL GUINEA

855 719

42 011

223 530

800 145

-11 HONG KONG AND SHANGHAI BANKING CORP.*

- BGFIBANK GE

2012 RESULTS IN THOUSANDS OF US DOLLARS – * IN ITALICS 2011 RESULTS THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


Understand Africa’s tomorrow… today NIGERIA The new power tycoons

ZIMBABWE Mugabe and Tsvangirai in “do or die” election

w w w.t hea f r ic a rep or t .c om

DRC Grand ambitions on the Congo River

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SHAKING UP

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GROUPE JEUNE AFRIQUE GROUP AF

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up World wakes to Mali crisis Dlamini-Zuma: out no peace with development

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Eye kept on bad banks

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TOP 200 BANKS

We increased capital in 2012 through two contributions worth $16m. We continue not to distribute dividends to reinforce our capital reach.”

RANKINGS 2013 161-200

161

159

162

177 +15 CORIS BANK INTERNATIONAL

163

DIFF.

RANK '12

Mazhar Rawji, Chairman, Rawbank (#180) RANK '13

96

-

BANK NAME

-2 MERCANTILE BANK

- STANDARD CHARTERED BANK CAMEROON

COUNTRY

NET INTEREST INCOME

TOTAL ASSETS

LOANS

DEPOSITS

SOUTH AFRICA

834 486

36 110

608 982

558 259

BURKINA FASO

820 719

55 502

441 712

507 226

CAMEROON

808 987

47 782

332 709

687 420

BURKINA FASO

790 582

57 802

459 406

543 331

GABON

787 327

53 960

364 972

682 606

164

174 +10 ECOBANK BURKINA FASO*

165

161

166

156

-10 BANCO COMERCIAL DO ATLÂNTICO*

CAPE VERDE

780 040

44 521

516

654 367

167

155

-12 NATIONAL BANK OF KENYA

KENYA

777 653

55 292

328 254

639 117

168

165

-3 AGRICULTURAL DEVELOPMENT BANK

GHANA

762 249

16 906

405 284

505 505

169

163

-6 SOCIÉTÉ COMMERCIALE DE BANQUE CAMEROUN

CAMEROON

756 868

58 421

450 562

627 580

170

162

-8 BICICI*

CÔTE D'IVOIRE

739 381

49 101

409 770

596 768

171

158

-13 BANQUE NATIONALE D'INVESTISSEMENT

CÔTE D'IVOIRE

734 288

52 136

313 688

630 075

172

117

-55 SOCIÉTÉ GÉNÉRALE SOUTH AFRICA

SOUTH AFRICA

719 745

9 879

656 338

651 027

173

187 +14 AWASH INTERNATIONAL BANK

ETHIOPIA

712 962

-

290 923

117 238

174

172

-2 ECOBANK BÉNIN*

BENIN

711 214

52 265

385 516

445 954

175

182

+7 AFRASIA BANK

MAURITIUS

709 838

15 456

405 263

622 165

176

167

-9 SOCIÉTÉ IVOIRIENNE DE BANQUE

CÔTE D'IVOIRE

701 205

64 708

480 227

631 620

177

173

-4 FIDELITY BANK GHANA

GHANA

698 282

72 749

346 721

566 202

178

171

-7 ECOBANK SÉNÉGAL*

SENEGAL

696 825

51 687

366 403

501 449

179

164

GHANA

686 521

77 123

303 987

551 245

180

179

GABON

676 795

47 055

325 110

488 041

181

168

-13 BANQUE DES MASCAREIGNES

MAURITIUS

675 115

21 936

518 866

462 757

182

188

+6 RAW BANK

DEM. REP. CONGO

669 080

59 210

229 730

495 660

183

184

+1 BICIS

SENEGAL

645 315

58 967

392 708

517 458

184

-

ANGOLA

645 181

17 682

99 185

541 552

185

186

SOUTH AFRICA

644 769

23 810

333 951

210 580

186

-

CONGO-BRAZZAVILLE

617 189

45 987

189 202

491 925

187

194

MAURITIUS

615 094

20 524

388 268

545 184

188

200 +12 CAL BANK

GHANA

609 138

67 700

409 219

416 212

189

191

TANZANIA

608 927

10 364

274 427

455 322

BOTSWANA

607 462

36 308

432 085

539 962

ALGERIA

606 185

40 889

256 852

317 943

MALI

595 811

57 088

308 419

409 856

MADAGASCAR

595 077

44 653

225 240

491 945

190

-

191

180

192

189

193

176

-4 BICIG

-15 STANBIC BANK GHANA* -1 UNION GABONAISE DE BANQUE*

- STANDARD BANK DE ANGOLA +1 SASFIN BANK - FÉDÉRATION DES MUCODEC +7 BANK ONE

+2 EXIM BANK TANZANIA - AFRICAN BANKING CORP. BOTSWANA -11 ABC BANK ALGERIA (EX-ARAB BANK. CORP. DE ) -3 ECOBANK MALI* -17 BANK OF AFRICA – MADAGASCAR*

194

-

EGYPT

594 066

16 779

493 804

51 403

195

196

+1 ECOBANK CAMEROUN*

CAMEROON

593 662

42 760

361 394

469 810

196

175

-21 AL BARAKA BANK TUNISIE*

TUNISIA

592 000

18 000

281 000

411 000

197

193

-4 LA CONGOLAISE DE BANQUE

CONGO-BRAZZAVILLE

587 272

39 547

272 584

517 269

MADAGASCAR

579 096

39 755

226 447

475 005

EQUATORIAL GUINEA

573 542

31 872

133 979

515 800

GHANA

570 412

-

-

-

198

-

199

178

200

197

- AFRICAN EXPORT-IMPORT BANK

- BNI MADAGASCAR -21 SOC. GÉN. DE BANQUE EN GUINÉE EQUATORIALE* -3 SOCIÉTÉ GÉNÉRALE – SSB BANK

2012 RESULTS IN THOUSANDS OF US DOLLARS – * IN ITALICS 2011 RESULTS THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

SOUTHERN AFRICA

O

ver the past decade, making money has been relatively easy for South Africa’s bankers. A property boom from 2002 to 2008 fuelled significant wealth creation. When that market started cooling down, growth in unsecured loans kept shareholders happy and the bonus pot full. But with economic growth of only 2% expected this year in South Africa, down from an initial forecast of 2.8% by the International Monetary Fund (IMF), low interest rates and less appetite for loans from customers and banks, earnings growth will be much harder to sustain, ratings agency Fitch says. South African banks dominate the region, contributing $596bn – or 87% of the total assets of the top 30 Southern African banks from our Top 200 ranking. Banks have already focused on growing non-interest revenue, such as fees and insurance payments, as the low interest rate environment limits growth in net interest revenue, banks’ traditional mainstay. With smaller rivals like Capitec Bank (#55) winning retail market share based on a strategy of lower fees, there has been limited scope for banks to boost this revenue stream, says Jean Pierre Verster, analyst at 36ONE Asset Management in Johannesburg. ABSA WINS ON CREDIT LOSSES

Absa (#3), the bank with the largest retail footprint, managed to grow its net interest income (NII) in the six months to June 2013 by 5%, while non-interest income grew a mere 1%. Nedbank (#5) had more success, growing NII by 6.9% and non-interest revenue by 15.4%. In contrast, Absa, which has been a cautious player in the unsecured lending space, saw its credit losses decline by THE AFRICA REPORT

FINANC E SPECIAL

COUNTRY

PROFITS ($m)

Newly cautious over unsecured loans, Southern African banks are looking for non-interest revenue streams

BANK

TOTAL ASSETS ($bn)

Searching for growth

RANK IN TOP 200

TOP 10 SOUTHERN AFRICAN BANKS

1 2 3 4 5 12 25 30 35

STANDARD BANK GROUP STANDARD BANK OF S. AFRICA ABSA GROUP FIRSTRAND BANKING GROUP NEDBANK GROUP FIRST NATIONAL BANK S. AFRICA BANCO ANGOLANO DE INV. BANCO ESP. SANTO ANGOLA* BANCO DE FOMENTO ANGOLA

S. AFRICA S. AFRICA S. AFRICA S. AFRICA S. AFRICA S. AFRICA ANGOLA ANGOLA ANGOLA

181.9 115.3 95.2 90.7 80.5 27.0 10.8 8.9 7.9

2 287 1 406 1 030 1 693 950 718 179 119 218

37

AFRICAN BANK

S. AFRICA

7.0

154

2012 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2011 RESULTS

14%, compared with a 23.1% increase in impairments at Nedbank. While most of the banks have slowed the growth of unsecured loans, analysts will closely watch the performance of these loans. Capitec, a big player in this market, saw net loans and advances increase by 66% to R27.9bn ($2.8bn) in the year to end February, while impairments also grew 66% to R2.7bn. The loan book of African Bank (#37), the market leader in this segment, is of more concern. In May, it reported a 26% drop in earnings for the first half of the year, which forced it to cut its dividend. It warned that bank unit earnings for the second half will be even lower, while non-performing loans rose to 30.2% by June, up from 29.2% a year earlier. African Bank is planning a R4bn rights

issue and the sale of furniture retailer Ellerines as it tries to strengthen its balance sheet and to restore investor confidence. African Bank purchased Ellerines, which sells furniture on credit, in 2008 for R10bn. The group has failed to achieve profit targets, and African Bank says it no longer fits its strategy. The bank has been the worst performer in the sector on the Johannesburg Stock Exchange this year. A “NEW NORMAL”

Denzil De Bie, a director in Fitch’s financial institutions team, says he expects the rate of unsecured lending to slow in the light of its weak performance and potential systemic implications. While low interest rates have placed traditional revenue streams under pressure, ● ● ●

2 287

Africa’s most profitable banks Rank in the Top 200 Profits ($m)

1 693 1 4

1 406 2

1 030 3

STANDARD BANK GROUP

FIRSTRAND BANKING GROUP

STANDARD BANK OF SOUTH AFRICA

ABSA GROUP

950 5

NEDBANK GROUP

SOURCE: JEUNE AFRIQUE TOP 200 BANKS

Africa’s top five most profitable banks in 2012 were South African, with their total profits at $7.4bn, up from $6.2bn in 2011. FirstRand (#4) has punched above its weight, coming in ahead of Absa and Standard Bank South Africa. Absa, which was the continent’s second most profitable bank in 2011, slipped to the fourth spot, with a $221m drop in profits. S E P T E M B E R 2 013

97


TOP 200 BANKS

● ● ● this has helped to improve the ratio of non-performing loans since 2010, he said. It may be time to adjust to a “new normal” with lower growth levels and returns on equity slightly above inflation plus economic growth rates, Verster says. “The big question is where will the next growth come from,” he says. “Banks can’t force property prices up. The corporate sector is very cash flush and doesn’t need to borrow money. For now, banks are keeping the unsecured loans taps shut. There isn’t much room to further increase fees, so the focus starts shifting to cost cuts.” The main focus for cost cuts will be retrenching staff, an area where Absa has been at the forefront, and maximising investments in information technology, Verster says. Expanding on the rest of the continent will also become more important.

In July, Barclays combined its African assets, with the exclusion of political risk hotspots Egypt and Zimbabwe, with Absa to improve focus and align operations on the continent (see box). Nedbank is expected to exercise its option, valid from November, to convert a $285m loan into an equity stake of 20% in Togobased Ecobank Transnational (#14), which operates in 34 African countries. The two groups established an alliance in 2008 to provide tailored services to their clients across the continent. Mauri-

NADINE HUTTON/BLOOMBERG VIA GETTY IMAGES

98

P R O F IL E

BGA ABSA/BARCLAYS MERGER

Unity is strength ABSA’S JULY TAKEOVER of Barclays’ African operations will diversify its earnings base and help boost returns to shareholders, but concerns remain over the challenges faced by operations in South Africa. The newly combined Barclays Africa Group (BGA, according to its listing code on the Johannesburg stock exchange) was formed after Absa bought Barclays’ assets in Botswana, Ghana, Kenya, Zambia, Mauritius, Uganda, Tanzania and the Seychelles. The R18.3bn ($1.9bn) deal, which excludes Barclays’ operations in Egypt and Zimbabwe, increased Barclays’ stake in Absa from

55.5% to 62.3%. Shareholders will earn higher returns than in Absa as a stand-alone company, but risks remain as earnings from the other African operations are more volatile, explains Johann Scholtz, an analyst at Afrifocus Securities. In the first half of the year, Absa grew its headline earnings by 8% to R4.3bn, compared with a 1% decline to R874m for the Barclays Africa assets – about 80% of which are in Botswana, Ghana, Kenya and Mauritius. Increasing its revenue in South Africa, where it has underperformed rivals and lost market share in its key retail segment, seems

unlikely as management has failed to present tangible initiatives, Scholtz says. The rationale for the tie-up is to align the oversight and strategic direction of Barclays’ African business, with Absa boss Maria Ramos as chief executive of BGA. However, Nedbank Capital analyst David Danilowitz warns that Absa “has to date not delivered on acquisitions”. After buying a 50% stake in Banco Comercial Angolano amidst much fanfare in 2005, it sold out in 2009. Its R10bn purchase of retailer Edcon’s debtors’ book last year also failed to generate sufficient returns to offset the cost of capital, Danilowitz says. ● J.M.

tian banks, which are fast attracting offshore investment into Africa, have also pursued a continental diversification focused on East Africa (see page 78). “Due to anaemic domestic economic conditions, we consider that longer-term growth prospects are likely to be driven by expansion into the rest of Africa for many of the major banks,” says De Bie. Verster is less optimistic about the near-term contribution of African assets to the country’s largest banks. “It still makes a very small contribution to profit. Yes, they are recording higher growth rates, but it is coming from a low base and won’t be able to offset the impact of a low-growth South Africa,” argues Verster. While the prospects are rosy – with low banking penetration rates, big populations and growing economies in other African countries – income levels remain low. “I’m not bearish on Africa, but the impact will be felt in the long term, not in the next five to 10 years,” he concludes. ELSEWHERE IN THE REGION

The largest non-South African bank in the region is Angola’s Banco Angolano de Investimentos (#25), which struggled in 2012 and posted a 15% drop in profit to $180m due to nonperforming loans caused by a decline in luxury house prices. A new foreignexchange law that came into force in 2013, which forces foreign companies to pay taxes in local currency as well as to pay suppliers via Angolan bank accounts, could push up fee income for domestic banks by 10%, according to analysis from the sub-Saharan African financial services firm Eaglestone. Zimbabwean banks barely make a show on the Top 200 list, with their balance sheets suffering from chronic non-performing loans and a liquidity crisis. There is now new business uncertainty following the July 2013 national election and concerns about how the government’s indigenisation policy will affect foreign-owned banks (see page 38). According to the IMF, at the end of 2012, nine of the 22 banks were operating below the new prudential ratio of 30% liquidity to short-term liabilities that the central bank introduced in June 2012. Four banks have failed in the last two years, including the Royal Bank of Zimbabwe, which surrendered its licence in July 2012 after the central bank said it was critically under capitalised. ●

THE AFRICA REPORT

Jana Marais in Johannesburg •

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

Banks prepare for harder times New regulations in Nigeria that will reduce fee income and raise reserve requirements could curb growth in the financial sector

BANK

COUNTRY

14 15 16 17 19 23 24 27 36

ECOBANK TRANSNATIONAL INC. FIRST BANK OF NIGERIA ZENITH INTERNATIONAL BANK ZENITH BANK NIGERIA UNITED BANK FOR AFRICA GROUP ACCESS BANK GROUP GUARANTY TRUST BANK UNITED BANK FOR AFRICA NIG.* DIAMOND BANK

TOGO NIGERIA NIGERIA NIGERIA NIGERIA NIGERIA NIGERIA NIGERIA NIGERIA

39

ECOBANK NIGERIA*

NIGERIA

PROFITS ($m)

TOP 10 WEST AFRICAN BANKS TOTAL ASSETS ($bn)

WEST AFRICA

RANK IN TOP 200

20.0 287 17.7 455 16.6 643 15.6 612 14.5 350 11.2 245 11.1 558 10.1 ( 100 ) 7.5 141

6.9

( 15 )

2012 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2011 RESULTS

N

igerian banks enjoyed a prosperous 2012, coming off a productive period of recovery that saw a wave a consolidation in the sector and the Asset Management Company of Nigeria (AMCON) soaking up N4.5trn ($27.8bn) in toxic assets. Banks in the Francophone region have remained stable due to the strict polices of the CFA franc zone. Our list of Top 200 African banks features 18 Nigerian banks, with $130bn in assets. The Nigerian banks dominate the West Africa region and hold 62% of the assets in our Top 200. Nigeria’s banking sector is expected to see some strain as its neighbours continue along the path to prosperity and healthy competition. A number of new regulations to strengthen the sector and make it more accessible to individuals and businesses are, according to ratings agency Fitch, “likely to constrain profitability over the next 18 months” and erase some of the gains made in recent years. EARNINGS PRESSURE

The Central Bank of Nigeria (CBN) has mandated a phasing out of commission on turnover, a customer transaction fee, by 2016. In March, the CBN published a circular on changes to a wide range of bank charges. The cuts to commission on turnover, which applies to customers’ debit transactions on current accounts, began in April when banks cut the N5 per N1,000 charge to N3. Fitch says this move will have a major impact, specifically on banks with large retail operations. Adesoji Solanke, a banking analyst for Renaissance Capital, agrees: “If you look atthepercentofcommissiononturnover, it’s as much as 50% of fee income for big banks like Zenith [#16].”

JACOB SILBERBERG/PANOS-REA

100

Zenith Bank stands to lose a large chunk of its income from the new restrictions on customer charges

While trying to make up for the loss of this revenue, banks will have to contend with higher AMCON levies, which the CBN raised to 0.5% of total assets earlier this year from 0.3%. A CBN regulation that took effect in July also requires a 50% cash reserve requirement on public sector deposits. This is likely to restrict liquidity, as those funds will sit at the central bank rather than collect interest. First Bank of Nigeria (#15) reported that 27% of its deposits come from the public sector, equating to roughly $5bn. The move is expected to cause banks, particularly smaller ones, to push up interest rates. Fitch also says that Nigerian banks can boost volume, widen other feebased products and focus on low-cost

deposits to offset earnings pressure, pointing to AMCON bond maturities in December 2013 and October 2014 as a source of additional liquidity. The largest banks already seem to be withstanding the headwinds and expanding their reach in the region and beyond. Guaranty Trust Bank (#24) announced plans to buy a 70% stake in Fina Bank in Kenya in July, and First Bank is looking for opportunities. Others, like United Bank for Africa (#19) and Access Bank (#23), are disposing of assets abroad. There is some downward movement on interest rates among banks operating in the Union Economique et Monétaire Ouest-Africaine (UEMOA), thanks to competition by banking groups challenging “the old guys – BNP, Citibank, Société Générale and Standard Chartered”, says Magatte Diop, chief

THE AFRICA REPORT

FINANC E SPECIAL

S E P T E M B E R 2 013


TOP 200 BANKS

FRANCOPHONE ZONE SAFE

He expects little change to the balance sheets of banks in the zone should there be new regulations, as the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) has been strict and quick to react to market forces. That extra toughness has kept banks from failing or amassing toxic assets, Diop argues. Banks supervised by the BCEAO are smaller than Nigerian banks, but their balance sheets are unlikely to take big hits in coming years. Renaissance Capital’s Solanke says that Ghanaian banks are actually more profitable than Nigeria’s: “The average return on equity is well over 30% for banks in Ghana. For Nigeria, it’s 19% for the ones we look at.” Ghanaian banks have few nonperforming loans, but their stocks have high prices and low liquidity. A tightening of regulations is likely to have a positive effect on balance sheets. Last year was the first year banks had to comply with a doubling of stated capital reserves to ¢60m ($28.4m). This year the Bank of Ghana implemented a new formula to calculate the base rate for loans for commercial banks. The move is meant to offer greater transparency, says Anastacia Arko, equity research analyst at Databank Financial Services. “It will help support loan book growth, and banks will be able to give more attractive loans, particularly to SMEs,” she says. ● Kimberly S. Johnson in Freetown THE AFRICA REPORT

FINANC E SPECIAL

IN T ER V IE W

Frank Adu MANAGING DIRECTOR, CAL BANK (#188)

A challenge is getting people to come to us TAR: Your profits are at a five-year high, and you are the second best performing stock on the Ghanaian bourse this year. What is behind the bank’s recent success? FRANK ADU: It is not a recent success, it is a continuation of the bank’s growth – although it is true that profitability is markedly higher than in recent years. We’ve seen high ROEs (Returns on Equity) and ROAs (Returns on Assets) and particular success in lending, partly due to our focus on long-term loans where other banks are focusing on short-term loans. There is a demand from investors for our stock, and you will see this go up. This is all down to hard work and strategy.

are not comfortable dealing with banks. We also have government debt, but it’s a good balance. You’ve got to support government, it has its own challenges. Does the bank have any contracts in the oil and gas sector? We have a lot of downstream activity in the oil and gas sector, and we are striving to move further upstream. Unfortunately the current government policy does not open oil and gas contracts to local banks. It only covers international banks, in Germany, Norway, South Africa… For me this is complete nonsense. If I were the minister I would not stand for this.

What sort of clients do you have What is your strategy, as a beyond Ghana? Does CAL Bank relatively new bank, for acquiring have the potential to become a new business and competing with pan-African entity? bigger banks? Our banking activity is solely Bigger banks are losing the within Ghana, however we engage national share in the face of in a lot of collaborations beyond younger banks being more aggressive and We are gaining ground versatile. We are by placing a lot of emphasis gaining ground by on customer care placing a lot of emphasis on customer care – it is the biggest Ghana. We’ve got a huge department in the bank. international book [worth $430m], which covers places such as What are your dealings with Mauritius and Dubai. small and medium-sized But we are not ready to jump on enterprises (SMEs)? How does the pan-African bandwagon. Our CAL Bank balance investing in duty is to return value to government bonds versus shareholders instead of jumping on start-up capital? a bandwagon that may not be the We already have a lot of SMEs on route for every bank. our books, and the percentage of this kind of business on our portfolio Are the concerns about Ghana’s is growing. SMEs in developing economy well founded? countries have complex needs, and It is true that Ghana has some we need to find appropriate ways to significant fiscal challenges, finance them. A challenge is actually however the situation is not that getting people to come to us – for it’s on the brink. ● various historical reasons people Interview by Ruby Edwards S E P T E M B E R 2 013

ALL RIGHTS RESERVED

executive of the US- and Senegal-based Peacock Investments. The arrival of Moroccan banks such as Attijariwafa Bank (#7) and Banque Centrale Populaire has driven activity. Lenders talk about risk factors pushing up interest rates, particularly for small and medium-sized enterprises (SMEs), but the rates are not justifiable, Diop says. He argues that there are high levels of deposits, therefore rates should be lower. In addition, increased competition among banks operating in the UEMOA zone is going to “put a lot of pressure on traditional banking”, Diop says. Senegal is underbanked, as is Côte d’Ivoire, with penetration rates hovering between 15% and 20% in Senegal, according to Diop. The situation is changing as growth rates are rising and people are earning more. “When interest rates are not fixed, people will shop around, and that will drive interest rates down,” Diop says.

101


TOP 200 BANKS

EAST AFRICA

RANK IN TOP 200

TOP 10 EAST AFRICAN BANKS

Banking on integration Regional integration is encouraging banks to set up in all markets in East Africa as they target a large base of rural-based and unbanked consumers

R

eapingthedividendsofincreased regional integration and technological innovation, the topperforming banks in East Africa are registering respectable profits from their cross-border holdings. It is a trend likely to be followed by the mid-tier banks, as the region’s largest banks eye the potential of the lucrative Ethiopian market. And, as order is restored in Somalia, old fears that held back the bankers are falling away. Increasingly, it seems, the future of banking success in the region will be determined by three big questions: Who will be quickest at the draw to develop a footprint across the region? Which bank will ‘devolve’ its products to the grassroots? And who will have the ability to marshal resources to finance the coming resource boom? Kenyan banks are keen to set up in Ethiopia, but state-controlled Commercial Bank of Ethiopia (#44), the region’s largest bank by assets, has almost 700 branches and finances nearly 40% of the

44 59 63 65 75 89 94 99 100 101

BANK

COMM. BANK OF ETHIOPIA* KCB GROUP ARAB BANK EC. DEV. IN AFRICA KENYA COMMERCIAL BANK EQUITY BANK GROUP EQUITY BANK KENYA STANDARD CHARTERED KENYA COMMERCIAL BANK OF ERITREA* CO-OPERATIVE BANK OF KENYA* CRDB BANK

loans in the country. It has built up the kind of muscle that gives incoming competitors pause. The government in Addis Ababa recently licensed mobile banking transactions, a move that will significantly raiseconsumernumbers.IfEthiopiajoins the East African Community, its leading bankscouldrivalKenya’sasthedominant banking force in the region. A decade of liberal policies has favoured the Kenyan banking sector. The country dominates the region’s 30 top banks, with 19 of them based in Nairobi. Some mid-tier Kenyan banks are now larger than the biggest banks in countries like Rwanda, none of which made it onto our Top 200 list. With 43 banks, Kenya’s network in the region is by far the largest, with a total balance sheet of KSh2.5trn ($28.6bn) in June 2013. Shares of Kenyan banks soared in August in expectation of good results for the first half of 2013. Kenya Commercial Bank Group’s (#59) (KCB) share price rose 48% in the first half of 2013.

SOURCE: CENTRAL BANK OF KENYA

June 2013 March 2013 72 74 99

Personal/ household

Real estate Trade

97

Transport & communication

Manufacturing

53 50 67 66

Energy & water

Agriculture

Building & construction

50 50

Financial services

6.5 4.3 3.7 3.5 2.8 2.3 2.3 2.0 1.9

141 178 128 140 89 93 13 62

1.9

51

2012 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2011 RESULTS

Sectorial distribution of loans in March 2013 and June 2013 (in KShbn) 377 355 301 284 195 186 193 192

COUNTRY

ETHIOPIA KENYA SUDAN KENYA KENYA KENYA KENYA ERITREA KENYA TANZANIA

TOTAL ASSETS ($bn) PROFITS ($m)

102

34 33

14 15

Mining & quarrying Tourism, restaurant & hotel

Lending in Kenya is rising. Gross loans and advances increased by 3.6% between March and June to KSh1.5trn ($17.2bn), according to the Central Bank of Kenya. But there has been an uptick in non-performing loans (NPL), which increased by 10% over the same period. The only sectors not to experience an increase in NPLs were personal/household, agriculture, and mining and quarrying.

The Central Bank of Kenya reported that the banking sector’s profit before tax was $715m for the six months to June 2013, up 15.6% on the previous year. The smaller banks were also performing well. National Bank of Kenya (#167), which rebranded in May, reported profits of KSh953.3m for the first half of 2013, a significant leap from profits of KSh236m in the second half of 2012. DEVOLUTION OPPORTUNITIES

Kenya’s banks are still a largely conservative bunch. This aversion to risk over the past decade is, however, what has given the advantage to more adventurous and newer operators such as Equity Bank Group (#75) and Family Bank, both of which filled a gap in rural retail banking at a time when many of the traditional banks were reducing their activities outside of major urban areas. This bold approach reversed the trend in the industry. Today, many of the banks that withdrew their services from the countryside are returning and finding themselves playing catch up with Equity Bank. Now that political devolution has come to Kenya, each of the 47 new county governments, with their expanded budgets and lists of investment opportunities, want to build relationships with banks that can structure deals and offer packages in line with their fiscal plans. Bankers are watching keenly to see the end result of a troubled partnership that had Equity Bank collecting revenue at the Masai Mara Game Reserve on behalf of Narok County. This same phenomenon is also happening in Uganda. The large banks that dominated over the past decade, like Standard Chartered Bank Uganda (#155) and Barclays, are being out-

THE AFRICA REPORT

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TOP 200 BANKS

manoeuvred by indigenous banks like Centenary and Crane. Large banks – like KCB and Equity Bank – and emerging ones – like I&M Bank (#112) and Diamond Trust Bank Kenya (#117) – have been diversifying by investing in subsidiaries in the region. They have branches in most countries in East Africa, some of which have made their own investments in the region. Although the past year brought political problems for South Sudan, KCB, Equity Bank, Cooperative Bank of Kenya (#100) and CfC Stanbic Bank

(#113) have continued to perform solidly there. In Sudan, the continued sanctions imposed on the government present complexities for banks and companies that seek to deal with businesses there. While there is a lot of visible investment in Khartoum and ties with Arab countries and China, it remains hard for US and European firms to participate without risking fines and other sanctions. A large element of regional integration has been a slew of ambitious infrastructure projects. With road, rail and pipeline projects on the agenda, banks

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will scramble for a share of the deals over the next couple of years. The discovery of new oil and mineral deposits across the region offers rich opportunities. However, these projects require funding that would rarely be smaller than $100m, and the indigenous banks simply do not have the technical and financial capacity to structure and finance these deals. As such, it is likely that many of the initial resource projects will be backed by regionaldevelopmentbanks,multinational banks and Chinese banks. ● Limo Taboi in Nairobi

IN T ER V IE W

ALL RIGHTS RESERVED

Tsehay Shiferaw PRESIDENT, AWASH INTERNATIONAL BANK (#173)

GERD bond purchases will lead to the drawdown of deposits TAR: Could you please give us an overview of Awash International Bank (AIB)? TSEHAY SHIFERAW: AIB is a pioneer private bank established in Ethiopia following the downfall of the military regime and the declaration of marketoriented economic policies, which happened in 1991. The bank was founded by 486 founding shareholders in 1994. It started banking operations on 13 February 1995. By the end of June 2013, the number of shareholders had risen to 3,122 and its paid-up capital to 1.1bn birr ($58m). Our total number of branches reached 115 by the end of June 2013, indicating the fact that the bank continues to hold its leading position among private banks in terms of branch network. And your market share? The deposit and loan market share of AIB has consistently been increasing and it was over 15 and 16% THE AFRICA REPORT

respectively of the private banks over the last three years. It has risen to over 20% for both deposit and loans in the financial year ending June 2013 in spite of the mushrooming and challenges of the business of private banks in Ethiopia.

Nevertheless, it has clearly indicated in its Growth and Transformation Plan that the export and manufacturing sectors will deserve special attention. Can you tell us about your bank’s role in financing manufacturing projects? Our bank has financed and continues to finance the manufacturing sector. As for future plans, we envisage expanding the share of our credit to the manufacturing sector and will give it lending

We expect that accession to the WTO and thereby the entry of foreign investors does not merely imply competition, but it also opens a door for cooperation as well. Can you tell us the effect of bond purchases for the Great Ethiopian Renaissance Dam’s (GERD) construction on your bank’s performance? The likely impact of the bond purchases for the GERD on the performance of

Can you tell us the major challenge the banking industry is facing? The major challenges facing the banking industry in Ethiopia are persistent inflation, the unavailability of trained manpower in the We’ll prioritise lending to the manufacturing market, a lack sector, which is the engine of growth of dependable infrastructure such as telecommunications priority in the coming years, our bank will be the and power, and the as the manufacturing sector drawdown of deposits. introduction and is the engine of growth for However, in practice, we implementation of new our country. have witnessed a continuous banking technology owing to and tremendous the lack of skilled manpower. What would you say if improvement in the Ethiopia decided to open magnitude of deposits What can you tell us its financial market to mobilised by our bank as we about government’s role in foreign investors are strongly working in setting lending priorities? tomorrow as part of its resource mobilisation The government has not journey towards accession endeavours. ● issued directives that set to the World Trade Interview by Andualem lending priorities by sector. Organisation (WTO)? Sisay in Addis Ababa

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NORTH AFRICA Morocco seeks to become a new financial centre as banks in Egypt, Libya and Tunisia try to recover from the impact of political instability

6 7 8 9 10 11 13 18 20

NATIONAL BANK OF EGYPT ATTIJARIWAFA BANK GROUPE BCP BANQUE MISR BANQUE EXTÉRIEURE D'ALGÉRIE BANQUE MAROC. DU COMM. EXT. BANQUE NATIONALE D'ALGÉRIE COMM. INTERNATIONAL BANK CNEP*

EGYPT MOROCCO MOROCCO EGYPT ALGERIA MOROCCO ALGERIA EGYPT ALGERIA

51.2 43.7 32.2 29.9 29.5 27.4 25.8 15.0 13.1

448 630 381 113 455 187 340 355 17

21

CRÉDIT POPULAIRE D'ALGÉRIE

ALGERIA

12.4

166

2012 RESULTS FROM TOP 200 BANKS RANKING – * IN ITALICS 2011 RESULTS

banking sector suggests that financial institutions in Tunisia will need additional capital that could exceed 5% of gross domestic product. OLD REGIME LEGACY

The banks in Tunisia were in a bad state before the uprising. Former president Zine el Abidine Ben Ali and regime barons used them as a piggybank, with non-performing loan rates of 16% in 2011 and possibly more due to underreporting. Unpicking the thread of corporate malfeasance left by the previous regime could turn up nasty surprises down the road. The three state-owned banks that dominate the sector are in the process of restructuring, with the IMF commending the regulator for its oversight. There is now a glimmer of hope for medium-term profitability. However, the central bank is now exposed as a

ALEXANDRE DUPEYRON

N

orth Africa remains the second regional financial powerhouse after Southern Africa. But within the region, change is afoot, largely driven by the North African uprisings. The result leaves Morocco in the driving seat, as it seeks to move the financial centre of power away from Cairo and towards its new Casablanca Finance City. The Bank for International Settlements reported that nearly $9bn left accounts in Egypt and Libya in the first three months of 2011, and much of that has not returned. Ongoing turmoil in Cairo is unlikely to encourage depositors to trust the system, despite promises of financial aid from Saudi Arabia and Qatar. Tunisia, which suffered less capital flight because of strict controls, nevertheless faces a challenge to recapitalise the country’s banks. An International Monetary Fund (IMF) report on the

COUNTRY

PROFITS ($m)

Politics changes the game

BANK

TOTAL ASSETS ($bn)

TOP 10 NORTH AFRICAN BANKS RANK IN TOP 200

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result of its liquidity support to banks, something that, among other things, has affected the sovereign rating. In February, Standard & Poor’s lowered its rating on Tunisia from BB to BB-, citing political tensions. Its report included a negative outlook “reflecting the risk that the political situation could deteriorate further amid a worsening fiscal, external and economic outlook”. It then downgraded Tunisia to B on 16 August, which prompted a downgrade of the three Tunisian banks rated by the organisation. One of the principal ways out of the crisis would be for Tunisian banks to start lending again. Though space is limited while the system processes its bad debts, experts such as the World Bank’s Laurent Gonnet argue that policy changes could help, such as lowering the amount of collateral needed to grant a loan. The rate is currently 167% of the value of the loan, the highest rate in the region. Morocco is leading the way with a credit penetration rate – the ratio of the credit banks extend and gross domestic product – of 90%, outstripping Tunisia’s 72%. Part of that is down to the aggressive charge underway at all the major Moroccan banks, which are pushing banking services into previously underserviced areas of the country. Groupe BCP (#8), for example, is planning to open 100 new branches a year to add to its already large network of more than 1,000 branches. It holds almost 30% of retail deposits in the country. Attijariwafa Bank (#7) added 395,000 customMorocco’s relative political stability has helped strengthen its banks at home and abroad

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TOP 200 BANKS

ers in 2012 and boasts 2,269 branches across the country. There is now fierce competition between BCP and Attijariwa for retail deposits. This ‘closer-to-the-customer’ approach has allowed Moroccan banks to benefit from the growth in Morocco’s emergent consumer classes. Despite the current economic difficulties in Morocco linked to the slowdown in Europe, Attijariwafa’s profits for 2012 went up 1% to Dh4.5bn ($538m). Liquidity remains an issue, however. Strong domestic performances are also helping to fund the expansion of Moroccan banks into Africa (see page 30). BMCE (#11), which bought a controlling stake in Bank of Africa in 2010, announced in June that it is ready to tap the international capital markets to the tune of $500m to fund its international expansion – a month after Attijariwafa said it was readying itself to ask for the same amount. Groupe BCP sold 5% of its shares in Banque Centrale Populaire to French bank BPCE and 5% to the

International Finance Corporation in late 2012 in order to raise the cash for its own expansion, including the June 2012 purchase of a 50% stake in Ivorian group Banque Atlantique to target West Africa. ISLAMIC BANKING

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stitution to turn into an Islamic bank. It follows the prolonged exit of French banks from Egypt – with Emirates NBD agreeing to buy BNP Paribas’s subsidiary last December and Qatar National Bank SAQ buying the Egyptian subsidiary of Société Générale in March 2013. The stringent capital controls make investment in Algeria a tough sell. Political considerations count there too.

Islamic finance in North Africa remains less affected by political turbulence and global financial downturns. Morocco should have its first fully Islamic bank in 2013, after Strong domestic performances allowing banks to create are helping fund Moroccan sharia-compliant instrubanks’ expansion into Africa ments in 2010. Gulf-based banks are now looking at the region with interest, especially given the Though Attijariwafa Bank has been rise to power of Islamist governments. asking permission from the central Abu Dhabi Islamic Bank has been wantbank to enter the market, the request ing to grow its retail base and is looking at has until now been denied. The Banque the larger population base across North Extérieure d’Algérie (#10) has tried Africa. It has applied for bank licences in to modernise, but it still largely relies Algeria and Libya, and may try to enter on its links with the oil industry rather Morocco and Tunisia. Qatar’s Masraf than on its customer deposit base, desAl Rayan bank announced in February pite its universal banking facade. ● that it would buy a Libyan financial inNicholas Norbrook

P R O F IL E

Banque Misr THE STATE-OWNED Banque Misr (#9) is the second-largest bank in Egypt and its profile largely mirrors that of this beleaguered North African country beset by political and economic turmoil. In March, ratings agency Moody’s downgraded the local currency deposit rating of five Egyptian banks, including Banque Misr, after downgrading Egypt’s government bond rating. In December, Standard & Poor’s also downgraded Egypt’s banks, including Banque Misr, with a negative outlook after lowering Egypt’s long-term ratings. “The increased polarisation between political forces is THE AFRICA REPORT

likely to weaken the sovereign’s ability to deliver sustainable public finances, promote balanced growth and respond to further economic or political shocks,” said Standard and Poor’s in December. More than a quarter of Banque Misr’s assets are treasury bonds. According to its 30 June 2012 financial statement, the latest available, Banque Misr held E£46bn ($6.6bn) in treasury bills, up from E£18bn in 2009. Its total assets stood at E£187.8bn in June 2012. It also has one of the lowest loan-to-deposit ratios in the Egyptian market. It stood at 27% in June

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PHOTO12/ALAMY

Profit amidst turmoil

Banque Misr: a mainly retail bank with loyal clients 2012, well below the sector average of 50%, according to Mohammad Abu Basha, an economist at EFG-Hermes. “This is a function of the bank going through a period of restructuring its loan book over the past few years, hence leaving little focus on expanding credit to the economy. Instead, most of the deposits were utilised to finance the country’s widening fiscal deficit through purchases

of treasury bonds and bills,” Abu Basha told The Africa Report. Banque Misr was profitable as of June last year and maintains a loyal base of mostly retail clients, with close to 70% of deposits from individuals working in the public and private sector. It offers the highest interest rates in the market, alongside National Bank of Egypt (#6). ● Nadine Marroushi in Cairo


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LAST WORD

A Groupe Jeune Afrique publication

BY SENTLETSE DIAKANYO

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

The popularity of economic populism

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

E

conomic populism has generally been the weapon of last resort for leaders witnessing their stars wane. Africa has for a long time been characterised by instability, weak economies and shocking levels of income inequality. We can blame the legacy of colonial thuggery, but in the main we should not let our wealthy kleptocrats escape the burden of responsibility for the general mess that Africans are subjected to. But then again, what may be a noble campaign for the economic emancipation of the people can often be viewed by those with capitalistic inclinations as economic populism. Zimbabwe’s President Robert Mugabe is not the most celebrated guy among the economically emancipated. Capitalists abhor him. Many have not forgiven him for expropriating land from a handful of white farmers who were beneficiaries of that colonial thuggery and allocating it to more than 200,000 households. ‘Uncle Bob’, as he is affectionately known, has further embarked on a national programme of indigenisation, which requires that at least 51% interest in private companies be handed over to his people. This would ordinarily not please evangelists of capitalism. Interestingly, we have not seen an exodus of capital from Zimbabwe in recent times. South Africans have been preaching economic empowerment for the African majority since 1996, but the economy remains largely in white hands. The acquisition of a 15% interest by politically connected individuals in private companies has not made an impression on the faulty structure of the economy. As former President Thabo Mbeki once said, the South African economy is made of two economies: one that is rich and white, and the other that is poor and black.

Half-measure economic empowerment programmes have failed to make an impact on the lives of the people, except of course for those unscrupulous politicians and their friends. Mugabe chose a shock-and-awe approach to the economic emancipation of his people. We may not like it, but our opinions frankly carry less weight. It came as no surprise when the former leader of the African National Congress Youth League, Julius Malema, launched his party, the Economic Freedom Fighters, in August. Malema delivered a more radical message that found resonance with the majority of the poor. Malema and his band of Economic Freedom Fighters have been unapologetic in their Marxist-Leninist posturing. Economic emancipation to them is rooted in the expropriation of land and wholesale nationalisation of the economy. White South Africans who largely benefited from historical crimes against the African people are well aware of how their cousins in Zimbabwe lost the spoils of colonialism, and they are not entirely in support of this journey of transformation. The official opposition party, the Democratic Alliance, is the last refuge of those seeking to preserve apartheid and colonial privileges. Change is inevitable. Persisting levels of poverty will eventually agitate the people to rise against their unimaginative governments and force the change they want to see. Revolutions are not pleasant. ●

Mugabe chose a shockand-awe approach. We may not like it, but our opinions carry less weight

Sentletse Diakanyo is a South African banker and a columnist for the Mail & Guardian.

THE AFRICA REPORT

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