Tartsi06 sept16 finance top200 nigeria focus

AFRICAN TOP 200 BANKS EXCLUSIVE RANKING

Nigeria Repairing the engine

Financial inclusion Banking on women

w w w.t he a f r ic a r ep o r t .c om

N ° T S I 0 6 • S E P T E M B E R 2 016

New competitors, new technologies and new customers will make or break Africa’s banks

The banker of tomorrow 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 8 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 40 DH • Netherlands 4.90 € • Nigeria 800 naira • Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 12,000 • South Africa 40 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 9,000 shillings • Tunisia 5.4 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zambia 30 ZMW • Zimbabwe US$ 4 • CFA Countries 3,000 F CFA

GROUPE JEUNE AFRIQUE

“What makes you the right Financial Institution to partner with?”

“Our commitment to Africa’s growth.”

emeafinance Treasury Service 2016 Best Transactional Bank for FI’s in Africa Banker Africa 2016 Best Corporate Bank, Southern Africa Global Finance World’s Best Sub-Custodian Banks 2016 Best Sub-Custodian Bank in Africa Global Finance World’s Best Securities Services Providers 2016 Best Securities Lender in Africa

To move a client forward, sometimes you need the right partner to do the same for you. With access to our liquidity, broad footprint and appetite for risk management, you can keep your reputation and your clients on the right path. Let us be your partner for growth on this continent we call home. standardbank.com/CIB

Corporate and Investment Banking

Authorised financial services and registered credit provider (NCRCP15).

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). Moving Forward is a trademark of The Standard Bank of South Africa Limited. SBSA 244602 07/16

AFRICAN TOP 200 BANKS EXCLUSIVE RANKING

Nigeria Repairing the engine

CONTENTS

Financial inclusion Banking on women

N ° T S I 06 • S E P T E M B E R 2 0 16

w w w.t he a fr i car epor t .com

New competitors, new technologies and new customers will make or break Africa’s banks

THE AFRICA REPORT | FINANCE SPECIAL SEPTEMBER 2016

The banker of tomorrow 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 8 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 40 DH • Netherlands 4.90 € • Nigeria 800 naira • Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 12,000 • South Africa 40 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 9,000 shillings • Tunisia 5.4 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zambia 30 ZMW • Zimbabwe US$ 4 • CFA Countries 3,000 F CFA

STAND AND DELIVER

THE BANKER OF TOMORROW

18

FINANCE SPECIAL EDITION

TOP 200 BANKS

FACES OF FINANCE While banks are bracing for difficult times Africa’s brightest financiers are not likely to waste the opportunities economic change can bring. Three leaders who can see further than plummeting profits speak to The Africa Report

THE SLOWDOWN BEGINS Our exclusive ranking of the continent’s financial institutions shows banks’ profits hit by the commodity price-led downturn

25

6 EDITORIAL The green card TRENDING 8 12 14 16

Briefing Dealbook Calendar Opinion Africa’s great debt balloon

FRONTLINE 18 The banker of tomorrow

COUNTRY FOCUS – NIGERIA

34 UBA Banking on Africa 38 Fintech Cairo’s innovators pick up speed 41 Debate Are Africa’s banks failing the continent?

42 Zimbabwe The cash crunch 42 Opinion Farai Sevenzo The great divide

59 Overview Stand and deliver 64 Electricity Uphill struggle to fix power 68 Profile Power, works and housing minister Babatunde Fashola 69 Infrastructure Lagos Island lifeline

46 Financial inclusion A gap in the market 50 Insurance Disruptors and the disrupted 52 Infrastructure finance Building bridges 54 Private equity Bloomin’ ‘eq!

56 Tax Panama: The fallout

26 ATLAS MARA Ashish Thakkar A bull surrounded by bears 28 AfDB Frannie Leautier First the world, then Africa 30 AFRICAN RAINBOW CAPITAL Patrice Motsepe Gold at the end of the rainbow

72

BANKING

MARKETS & MONEY

PEOPLE

COVER CREDIT: ANTOINE MOREAU-DUSAULT FOR TAR

59

Nigeria: After President Muhammadu Buhari halved the number of ministries and sacked several permanent secretaries, he told civil servants that he was determined to reform the bureaucracy and stamp out corruption

Armed with fintech et and fuelled by data, mee the new flexible friend of innovators and the unbanked

TOP 200 BANKS 72 76 84 86 90 92

Overview The slowdown begins Rankings Top 200 banks Nigeria Battered but not broken Morocco Seeking opportunities Kenya Only the strong survive South Africa Trouble on the home front 94 Cameroon Looking forward to more liquidity 98 Last Word Africa is not a country

ADVERTISERS’ INDEX AIR France p 2; LIQUID TELECOM p 4-5; DANGOTE GROUP p 7; ACCOR AFRIQUE p 11; ETHIOPIAN AIRLINES p 13; MCB GROUP p 15; CHANNELS TV p 24; OLAM GROUP p 29; REP. OF COTE D’IVOIRE p 32-33; ABAX p 37; ROGERS & COMPANY p 45; UNITED CAPITAL p 58; AFRICA REINSURANCE p 63; ECOBANK NIGERIA p 66-67; KPMG NIGERIA PROF. SERV. p 70-71; SAHAM GROUP p 79; RAWBANK p 81; EKO HOTEL & SUITES p 83; TGAIS p 87; RADIO PLUS p 89; TAR SUBSCRIPTION p 95; TAR DIGITAL p 97; CNN EMEA p 99; STANDARD BANK SOUTH AFRICA p 100

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

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FINANCE SPECIAL

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3

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6

EDITORIAL

THE AFRICA REPORT A Groupe Jeune Afrique publication

BY NICHOLAS NORBROOK

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

CH AIR M AN AN D FOU N D E R BÉCHIR BEN YAHMED

The green card

T

he smiles are a little more forced, the bonhomie fading. It’s tough out there for many bankers in Africa, on the front lines. Hammered by commodity price falls and plummeting currencies, Nigerian financiers now face the prospect of loans going bad in the power sector as well as in oil and gas.

South African bankers quietly despair at the sight of their president going after the finance minister in such a public way, inviting another certain downgrade of the sovereign rating – something that will drag down their own ratings with it.

Meanwhile, Africa’s bankers have a host of other things to worry about, from increasing global competition and tough new regulations on correspondent banking to a new era of financial technology companies who are keen to eat into their earnings. A naturally conservative crowd, bankers are going to have to be nimble to avoid being outpaced.

It’s a global phenomenon. China’s e-retail platform Alibaba is said to be the world’s largest bank without an actual banking licence.

Maybe they need a change of pace. Sitting on the floor of her barn, far out in the Zimbabwean countryside in Marondera, Mary Chijoke might not know about the techno travails of the pinstripe crowd. But she can accurately sketch out what she would do with another $1,000.

A new cattle enclosure here, a new farm hand, maybe part-time. Fuel for the truck to get to market.

Like the hundreds of millions of farmers in Africa, she lists access to capital as her top priority. We need to find a way of getting her the cash, for she will create the wealth on which the continent will grow – and she is productive: Mary is amused by

P U BL IS H E R DANIELLE BEN YAHMED publisher@theafricareport.com E XE CU T IVE PU BL IS H E R JÉRÔME MILLAN

the fact that it is she who supports her husband – who lives in Wedza, the nearest town – despite the fact that he supposedly has a good government job, and she is ‘just’ a farmer. “I regularly send him money with the phone,” she chuckles.

Agricultural finance is the hardest nut to crack. Farmers often don’t pay back loans, and governments often allocate weaker administrative staff to run agricultural banks.

But pious words about ‘industrialisation’ and ‘diversification’ ring hollow without it.

Successful developing countries – from South Korea to China, India and Brazil – all boosted their farmers out of subsistence farming and into surplus; cash that was then spent in other parts of the economy, and creating a genuine domestic market for local manufacturers and agro-processors to target.

Those richer farmers and bigger domestic manufacturers will certainly need a dependable banker.

Preferably one with an up-to-date mobile-banking channel, of course.

So who is doing this today in Africa? Morocco is one candidate for the virtuous cycle of increasing finance in agriculture, leading to better banking coverage of the population, and healthier banks. They sit high on our list of Top 200 banks.

In 2015, Credit Agricole du Maroc collected 71bn dirham ($7.3bn) in deposits, helping boost Morocco’s savings rates – another critical gap on the continent. ●

We must find a way to get the cash to farmers like Mary, for they will create the wealth on which the continent will grow

edit editorial@theafricareport.com THE AFRIC A REPORT

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FINANCE SPECIAL

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M AR KE T IN G & D E VE LO P M E NT ALISON KINGSLEY-HALL E D ITO R IN CH IE F PATRICK SMITH M AN AG IN G E D ITO R NICHOLAS NORBROOK editorial@theafricareport.com AS S IS TANT E D ITO R CHARLIE HAMILTON AS S O CIATE E D ITO R MARSHALL VAN VALEN BU S IN E S S E D ITO R MARK ANDERSON E D ITO R IAL AS S IS TANT OHENEBA AMA NTI OSEI REG IO N AL E D ITO RS CRYSTAL ORDERSON (SOUTHERN AFRICA) BILLIE ADWOA MCTERNAN (GHANA) S U B- E D ITO R ALISON CULLIFORD P RO O F RE AD IN G KATHLEEN GRAY ART D IRE CTO R MARC TRENSON D E S IG N VALÉRIE OLIVIER (LEAD DESIGNER) JEAN-PHILIPPE GAUTHIER CHRISTOPHE CHAUVIN (INFOGRAPHICS) P RO D U CT IO N PHILIPPE MARTIN RES E ARCH SYLVIE FOURNIER P H OTO G R AP H Y PIERANGÉLIQUE SCHOULER O N L IN E PRINCE OFORI-ATTA SALES SANDRA DROUET Tel: (33) 1 44 30 18 07 – Fax: (33) 1 45 20 09 67 sales@theafricareport.com CONTACT FOR SUBSCRIPTION: Webscribe Ltd Unit 8 The Old Silk Mill Brook Street, Tring Hertfordshire HP23 5EF United Kingdom Tel: + 44 (0) 1442 820580 Fax: + 44 (0) 1442 827912 Email: subs@webscribe.co.uk 1 year subscription (10 issues): All destinations: €39 - $60 - £35 TO ORDER ONLINE: www.theafricareportstore.com D IF CO M INTERNATIONAL ADVERTISING AND COMMUNICATION AGENCY 57-BIS, RUE D’AUTEUIL 75016 PARIS - FRANCE Tel: (33) 1 44 30 19-60 – Fax: (33) 1 44 30 18 34 advertising@theafricareport.com ADVERT IS IN G D IRE CTO R NATHALIE GUILLERY WITH JEANNY CHABON, SÉBASTIEN BLACHE RE G IO N AL MAN AG E RS IBIJOKE FABORODE PASCALE LALLEMAND CÉCILE LOUEDEC PRINTER: SIEP 77 - FRANCE N° DE COMMISSION PARITAIRE : 0720 I 86885 Dépôt légal à parution / ISSN 1950-4810 THE AFRICA REPORT is published by GROUPE JEUNE AFRIQUE

TRENDING

TAXING TIMES Mauritius Prime Minister Anerood

Jugnauth (right) ended a double taxation deal that allowed Indian investors to avoid capital gains tax.

?

Ethiopia’s Feyisa Lilesa shows his support for the people of Oromia.

I

s Skye bank an outlier or a symptom of deeper rot in Nigeria’s banking system? The Central Bank of Nigeria (CBN) insists the former. The CBN governor Godwin Emefiele fired Skye Bank’s management earlier in the year for failing to maintain a minimum capital ratio, and at the end of July injected N100bn ($317m) to stabilise the ailing bank, which posted losses of over N40bn in 2015.

A few weeks later it had to intervene again, this time in the battle of words, with rumours swirling of the bank being distressed: “The health of the Nigerian banking system remains strong. All banks in Nigeria are safe and depositors have no cause to fear over their deposits,” the CBN said a statement.

No

63% Yes

37% GeoPoll is the world’s largest mobile surveying platform and sample provider in Africa, enabling companies and organisations to gather quick, accurate and in-depth insights. To conduct your own mobile survey using GeoPoll’s easy-to-use platform visit Research.

GeoPoll.com.

NPLs CREDIT CRUNCHING

341.75

340 320

Angola Ghana Africa* Kenya 5

2010 11

Nigeria 12

13

14

15

16

*excluding South Africa, Congo 2015, unweighted average

Central Bank of Nigeria daily reserves gross (right scale, US$ billions)

331

Nigeria naira spot (left scale, naira per $)

300

Congo

That has not stopped people scratching their heads at the latest CBN proclamation, banning nine Nigerian banks from the country’s foreign exchange market for collectively failing to remit money owned by the national oil company to Nigeria’s new Treasury Single Account (TSA). The TSA is a new transparency mechanism enacted

by President Muhammadu Buhari after billions in oil money disappeared under previous governments.

A spokesperson for one of the affected banks, First City Monument Bank, told reporters: “This is really a function of the dire macroeconomic situation and illiquidity in the forex markets, rather than concealment or wilful non-compliance by banks.”

330 229

280

25.8

260 240

228 227

220 226

200 Sep

Dec

Mar

THE AFRIC A REPORT

Jun ●

FINANCE SPECIAL

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S E P T E M B E R 2 0 16

SOURCE: BLOOMBERG

20

10

members of the Niger Delta Avengers. The group announced a deal with the government to halt oil pipeline attacks.

Nigeria’s back against the wall

Africa’s non-performing loans as a proportion of total loans (%)

15

NIGERIA’S REBELS The military arrests suspected

FALLING FROM GRACE

Have you ever used a “loan shark” to borrow money?

0

PROTEST LAP Rio silver medalist

BANKING

In conjunction with GeoPoll, The Africa Report asked 100 South Africans the question:

SOURCE: IMF/CENTRAL BANKS/MOODY’S

8

TRENDING

WARRANT WORRIES Police

pressure on South Africa’s finmin Pravin Gordhan rattled markets.

COPPER BOTTOMS PIunging commodity prices led to an estimated 13,000 direct and indirect job losses in the DRC as mining firms put scores of projects on hold.

FLAGGING SUPPORT Protesters campaigning against Zimbabwe’s President Robert Mugabe took to the streets rallying under the social media slogan #ThisFlag.

SAURABH DAS/AP/SIPA; ROBERT F. BUKATY/AP/SIPA; STRINGER/REUTERS; MIKE HUTCHINGS/AP/SIPA; GWENN DUBOURTHOUMIEU FOR JA; MARCO LONGARI/AFP

“The business model whereby we are just

expanding and posting our flagss has to be reconsidered.”

Ecobank chairman Emmanuel Ikazoboh explains how the Togolese-based firm plans to change tack on its expansion strategy.

IPOs AFRICA GOES TO MARKET

11 IPOs expected to price in 2016

2016 promises to be a busy financial year for the continent.

This map charts some of the stock exchanges expected to be the most active and some of the key IPO deals likely during the year.

Projected active exchanges

by IPO value (US$ million) 14.5

Algeria

(1 deal)

Egypt

Ghana

52.5

(1 deal)

Mali

Algeria

179.1 (1 deal)

South Africa

Ghana

306

• Société des Ciments de Ain El Kébira $179.11m

Nigeria

• Interswitch Ltd $1,000m* • Blueline $552.50m

(2 deals)

• Agricultural Development Bank $52.49m

Egypt

998.8

• Bank of Africa Mali $14.49m

(7 deals)

• Consolidated Glass Works $306.00m Nigeria

1,000 (1 deal)

South Africa

*Expected post-IPO company valuation

SOURCE: BAKER & MCKENZIE

West Africa

• Food Industries Holding Co $393.44m • Arabian Food Industries Co $279.72m • Beltone Capital Holding Co $128m • Roiaa Group for Real Estate Investment $127.71m • Misr Italia for Tourism Development $69.93m

9

TRENDING

SOUTH AFRICA

GORDHAN IN THE CROSSHAIRS President Jacob Zuma and finance minister Pravin Gordhan will continue to lock horns over the fate of the country’s parastatals, as their relationship hits a new low.

On 26 August, Gordhan defied a second demand from the country’s elite police unit to answer questions about an investigatory unit he oversaw as head of the country’s tax authority. The rand plunged on the news, this time to a three-week low.

Meanwhile, at South African Airlines (SAA), a key battleground of this fight, board member Yakhe Kwinana resigned. The SAA chair Dudu Myeni is an ally of Zuma.

The resignation could allow Gordhan to appoint a new board. Whether he does or not will be a clear indication of the direction South Africa is taking.

IMPACT INVESTING

FOLLOW THE MONEY Impact investing in East Africa has grown strongly in five years.

The chart shows the proportion of total capital disbursed by country since impact investing began.

100%

US$1.4bn

US$7.9bn

90% 80% 70% 60%

ST TOCKS

EMPOWERMENT BID

The mobile telephony giant MTN announced a bold plan to boost stock ownership among South Africans to more than 30%, as part of a $727m Black Economic Empowerment (BEE) programme. Shares in the Johannesburg-listed company will be sold to qualifying black people at R102.80 each, 20% cheaper than the 10-day volume weighted average price. Surpassing the 30% black ownership threshold will allow the firm – Africa’s largest mobile operator – to bid for high-speed internet spectrum, due to be auctioned in the first half of 2017, and will make it the only South African operator to qualify to bid.

IRENE BECKER/GETTY IMAGES

10

FINANCIAL INCLUSION

COW-BACKED SECURITIES The May announcement that Nigeria had launched a new collateral registry boded well for efforts to draw an ever greater number into the formal banking sector.

Around 72% of the population of Nigeria have a formal bank account, against the continental average of 66%. The online registry allows low-income people to use moveable assets such as livestock and machinery as collateral in order to secure loans. According to the World Bank, which helped launch the scheme with Nigeria’s central bank, Nigeria is home to some 37m micro, small, and medium-sized enterprises (MSMEs), which struggle to gain access to credit in order to grow.

Similar schemes in Ghana and Liberia have helped boost financial inclusion in their countries. “In Ghana, the collateral registry has facilitated $1.3 billion in financing for the small-scale business sector since it was established in 2010,” said Elsa Rodriguez, the World Bank Group’s project leader.

50%

“We are not the only country

40% 30%

in recession; many countries are doing far worse than us.”

20%

0%

Non-Development DFI investors Finance Institution (DFI) investors Ethiopia

Regional/Unspecified Non-focus countries Rwanda

Tanzania Uganda Kenya

AFOLABI SOTUNDE/REUTERS

SOURCE: OPEN CAPITAL ADVISORS

10%

Nigeria’s finance minister Kemi Adeosun admits the country is in recession, confirming the impact of continued low oil prices on Africa’s second-largest economy.

THE AFRIC A REPORT

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S E P T E M B E R 2 0 16

TRENDING

DEALBOOK MERGERS AND ACQUISITIONS SSA inbound M&A for 2015 - $41bn

(+283%) Most acquisitive nations by value of activity

55%

28%

BOND ISSUANCES TOP 10 AFRICAN BONDS H1 2016

SSA outbound M&A for 2015 - $6.7bn (+13%) Most targeted nations by value of activity

28%

16%

18% 5% United Kingdom Russian federation

Netherlands Australia

United Arab Emirates

Sub-Saharan Africa-related M&A transactions totalled $66.7bn in 2015, a leap of 73% compared to the previous year. This was largely attributable to two trades: the $22.6bn reverse takeover of Steinhoff International by Genesis International and the $11.1bn purchase of Mediclinic International by Al Noor Hospitals.

FUNDRAISING SHAKE THE MONEY MAKER South African energy firm Engie SA raised $589 in loans to fund the construction of a 100MW solar power project in Northern Cape. The Kathu project is expected to go live in 2018 and will feature a state-of-the-art molten-salt energy storage facility.

Wema Bank, Nigeria’s oldest indigenous bank, announced in August plans to issue $63m in bonds as part of a fundraising round to finance the expansion of its branch network. The bonds will be issued in local currency and this is the first tranche of a planned $1.6bn programme.

The Botswana Telecommunications Corporation raised $44.4m in April following an oversubscribed IPO on the Botswana Stock Exchange. However, the value of the shares quickly slumped, making it the joint second-lowest value stock on the domestic equity market.

ISSUER

DATE PRICED

AMOUNT (US$ M)

COUPON

SOUTH AFRICA

08/04/16

1 250

4.875

2026

South Africa

BBB-

AFRICAN DEVELOPMENT BANK

24/02/16

1 000

1.125

2019

***

AAA

WEST AFRICAN DEVELOPMENT BANK (BOAD)

28/04/16

750

5.5

2021

***

BBB

AFREXIMBANK

17/05/16

750

4

2021

***

BBB-

AFRICAN DEVELOPMENT BANK

09/06/16

500

3.5

2018

***

AAA

AFRICAN DEVELOPMENT BANK

25/01/16

325.7 (£250)

N/A

2018

***

AAA

MATURITY COUNTRY

FITCH RATING

LOANS ISSUANCES TOP 10 AFRICAN LOANS H1 2016 COMPANY

DATE PRICED

COCOBOD

June

AMOUNT (US$M)

1 800

COUNTRY MATURITY OF RISK

2017

USE OF FUNDS

Ghana

Meet financing needs for the 2016/2017 cocoa crop

FIRST QUANTUM MINERALS

May

1 800

2019

Zambia

Improve financial flexibility without reducing liquidity, while further reducing net debt

SONANGOL

January

1 000

2021

Angola

Finance operating expenses in 2015

STANDARD BANK OF SOUTH AFRICA

April

1 000

2019

South Africa

General corporate purposes, including trade-related finance as well as infrastructure, power and mining-related lending transactions in sub-Saharan Africa

KENYA POWER LIGHTING COMPANY

June

500

2026 ($350) 2023 ($150)

Kenya

Refinance existing commercial loan facilities

EASTERN AND SOUTHERN AFRICAN TRADE June & DEVELOPMENT BANK (PTA BANK)

340

2019

Burundi

N/A

COCOBOD

300

2019

Ghana

Refinance short-term securities and pay off domestic debts

Kenya

Scheduled power plant upgrades, contributing to new and existing connections to homes and businesses across the country

Uganda

Network infrastructure development

February

CFC STANBIC BANK

April

135

2018 ($67.5) 2019 ($67.5)

MTN UGANDA

May

114

2021

THE AFRIC A REPORT

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S E P T E M B E R 2 0 16

SOURCE: THE AFRICA REPORT, DEBTWIRE

12

Ethiopian Airlines 1946-2016

BEST AIRLINE STAFF IN AFRICA

After 70 years, we’re circling the globe more than ever Ethiopian Airlines serves more African cities than any airline in the world. But that’s only half the story. We also serve more cities outside of Africa than any other carrier on the continent. Add to that our membership in Star Alliance the world’s premier airline network - and Ethiopian Airlines clearly stands at the peak of the African aviation sector.

CALENDAR NAIROBI INTERNATIONAL BOOK FAIR 21-25 September NAIROBI | KENYA kenyapublishers.org

CARDS & PAYMENTS EAST AFRICA 27-28 September NAIROBI | KENYA terrapinn.com STR/ AP/SIPA

14

OECD AFRICA FORUM 29 September PARIS | FRANCE This year’s edition will focus on African urbanisation, and ways of providing finance sustainable for Africa’s thriving local government and municipalities. www.oecd.org/africa-forum/

G20 SUMMIT 4-6 September HANGZHOU | CHINA Leaders of the world’s 20 major economies will convene at the 11th G20 meeting in Hangzhou – the first ever to be held in China – with Chinese president Xi Jinping delivering the keynote speech at the forum’s opening ceremony. The concept of ‘green finance’, of which China is a pioneer, is expected to dominate the discussions and a first report on findings will be ratified, clarifying the definition and objectives, as well as the challenges involved. Events for the sidelines include bilateral meetings with China, minister-level meetings and the annual informal leaders’ meeting of BRICS nations – Brazil, Russia, India, China and South Africa. Earlier, in July, China also hosted G20 finance ministers and central bank governors in Chengdu to discuss an array of topics before the Hangzhou summit, including global economic problems, sustainable and balanced growth, and green financing.

SEPTEMBER

AFRICAN GREEN REVOLUTION FORUM 5-9 September NAIROBI | KENYA Investors and advocates unite to push new financing solutions to Africa’s agricultural challenge. agrforum.com

WEST AFRICAN YOUNG LEADERS SUMMIT 6-8 September LOME | TOGO Connecting youth to global opportunities, using new media, facilitating dialogue and communication. waylstogo2016.com

AFRICA FASHION WEEK LONDON 9-10 September

LAKE OF STARS FESTIVAL 30 Sept. – 2 October MANGOCHI | MALAWI lakeofstars.org

INNOVATION AFRICA 20-22 September

OCTOBER

LONDON | UK The continent and diaspora’s designers strut their stuff. africafashionweeklondon.com

NAIROBI | KENYA Africa’s ‘must participate’ event for education, innovation and ICT. innovation-africa.com/2016/

UN GENERAL ASSEMBLY OPENS 71ST SESSION 13 September

EAST AFRICAN POWER INDUSTRY CONVENTION 21-22 September

NEW YORK | US un.org

NAIROBI | KENYA eapicforum.com

NTH

NIGERIA COM 20-21 September

LAGOS | NIGERIA From the Yabacon Valley to the latest twists in the telecoms scene, Nigeria’s leading ICT gathering. nigeria.comworldseries.com

BASEL | SWITZERLAND sabc.ch/abd

AFRICA HOTEL INVESTMENT FORUM 4-6 October KIGALI | RWANDA africa-conference.com/rwanda/

IMF & WORLD BANK ANNUAL MEETINGS 7-9 October

LES RENCONTRES AFRICA 2016 22-23 September

The annual meeting of the Bretton Woods institutions, gathering ministers, official and bankers in the US capital WASHINGTON DC | US imf.org

PARIS | FRANCE France’s top Africafocused business summit. africa2016.org THE AFRIC A REPORT

AFRICA BUSINESS DAY 5 October

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

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16

TRENDING

OPINION

Patrick Smith Editor in chief, The Africa Report

AFRICA’S GREAT DEBT BALLOON

D

efaults and debt crises – like the droughts that parch the Sahel and the grasslands of Southern Africa – are manmade disasters.

More specifically, they are the result of recklessness by a coalition of bankers and politicians. Bankers talked up Africa’s growth story, selling billion-dollar loans as commodity prices soared over the past 15 years. Governments went on borrowing sprees, spending some money on power stations, roads and sanitation but wasting more on patronage, bad contracts and buying off dissent in the towns.

Now we have the reckoning. Many bankers and economists fear another debt crisis in Africa. The last one – in the 1980s – held back growth for a generation. With historically high commodity prices, recycling of petrodollars and rapid growth, developing countries took out syndicated loans on international markets, drawing on Western-backed export credit guarantees. As foreign trade and investment crashed, dragging down the global economy, Western governments cobbled together debt relief schemes such as Brady bonds and the Heavily Indebted Poor Countries (HIPC) programme. The International Monetary Fund (IMF) and World Bank imposed devaluations and swingeing cuts in state spending together with trade liberalisation in exchange for low-interest loans and enrolment in debt-relief plans.

Could this history repeat itself? A senior African banker in Lusaka solemnly pulls up a spreadsheet forecasting the cost of debt service obligations against revenue for some of the continent’s biggest economies. “Unless there’s a miraculous windfall, many countries will be spending between 40% and 50% of their export revenues on servicing debts by 2030,” he laments, pointing to an almost vertiginous incline over the next decade. The damage could be limited and remedies found, he argues, if some credible officials would speak publicly about the risks. Only a few have dared so far.

In Lusaka in May, Akinwumi Adesina, president of the African Development Bank (AfDB), fired up delegates with his ‘high five’ goals for the region’s economies, including billions of dollars for power stations. Adesina was seamlessly upbeat at his first

AfDB annual meeting, but six months earlier he had sounded a much more sombre note.

“A new tide is rising in Africa,” Adesina told a meeting in Paris last November organised by the G20 grouping of rich economies. “Many countries face rising domestic interest rates from tightened monetary policies and have launched out to the international capital markets to raise funds to support both infrastructure and the rescheduling of debt.”

But as these bonds reach maturity and other loans are due for repayment, many governments will face hard choices, he added. “Whichever way one looks at it, African countries are getting them-

Many countries will be spending 40-50% of their export revenues on servicing debt by 2030 selves into deep waters,” warned Adesina. “This is especially so given their dependence on a narrow base of exports – mainly primary commodities.”

Yet finance ministers and central bankers are reluctant to echo Adesina’s alarms. In its latest report in July, the London-based Overseas Development Institute (ODI) warns that the financing options for African states are narrowing.

Reflecting the economic slowdown, banks in Africa are reining in loan issuance. Foreign loans are harder to get and more expensive. Alongside this, the ODI argues that the growth of non-performing loans and decline in the quality of bank assets, falling capital ratios and profitability all increase the likelihood of a financial crisis.

Already, there are wobbles in four important economies, according to the ODI. In Kenya, three banks failed recently due to insider lending and fraudulent financial statements. In Nigeria, bad debts in the oil sector are prompting banks to slow down their lending. In one of the most promising economies, Mozambique, the scandal linked to the ‘tuna bonds’ for a fishing fleet and secret security deals by Credit Suisse and Russia’s VTB have blocked foreign investment, shut out other foreign loans and caused a rift with the IMF. Ghana’s difficulties are more complex still, after its oil and gas revenues fell short. Its issuance of several eurobonds to meet the escalating costs of THE AFRIC A REPORT

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the civil service wage bill, successive devaluations and inflated power and oil production projects is creating a vicious financial cycle.

Faced with a looming repayment crisis, Ghana issued a $1bn eurobond at 10.75% interest to refinance its existing bonds in October 2015. The banks collected another round of arrangement fees – upfront fees average 1-2% on such bonds – and Ghanaians will pay for it with higher taxes and tariffs for power and water.

How can all this be managed? Firstly, the problem has to be recognised and new debt resolution measures agreed. Otherwise, there is a risk of rerunning the serial reschedulings and refinancings of the 1980s. There is almost no chance of the World Bank and the IMF launching a new HIPC-style debt relief scheme. But they could develop creative finance packages that enable countries to boost revenue and social investment rather than just repay debts.

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shutting out vulture funds and cutting the ballooning upfront fees on loans and reschedulings.

Also urgently needed are more accurate figures on the extent of company and individual, as well as state, debts. That would raise regulatory standards, according to London-based Development Finance International, which advises governments on debt strategy.

Private creditors will have to take a reality check. Countries will lose out unless governments coordinate a pan-African position on debt negotiations, perhaps backed by the AfDB and the United Nations Conference on Trade and Development. Agreeing a set of principles guaranteeing the transparency of and accountability for proposed loans and other financing instruments would help.

Some of the lending facilitates the more than $80bn leaving Africa each year via mispriced trade deals and tax evasion, according to the African U n i o n ’s c o m mission on illicit financial flows.

Russia’s VTB Bank is suing for payments on its overpriced loans to Mozambique. And commodity traders such as Glencore and Vitol are collecting debt repayments, at very lucrative rates, on oil- and mineral-backed loans.

Governments will also have to tackle the other side of the ledger: boosting revenue. Clawing back the cash with better monitoring of illicit flows by governments, international institutions and activists would boost depleted treasuries. So too would fixing the remittances business, which now brings far more capital into Africa than foreign aid, but takes far too much in usurious commission charges. Yet none of this is likely to happen until the days of debt denial are behind us. ●

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FINANCE

THE BANKER OF TOMORROW Armed with fintech and fuelled by data, let us introduce you to the new flexible friend of innovators, wealth creators and the unbanked

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By Nicholas Norbrook and Mark Anderson he time is 6:02AM, the year 2026, the location Lagos Financial City. Fatima Abouzeid flails at her digital personal assistant to silence the alarm, which in return flashes her a miffed/not-miffed emoji and starts to warble the main news headlines of the day.

“Markets in Shanghai closed up today on news that the Chinese bullet train manufacturer Fujian Corp won the contract to connect Casablanca to Abidjan… Shares in Echobank rose after chief executive Rosa Lawal suggested the Lagos-based lender might consider a sweetened buyout bid from an interested consortium of Nigerian and South African banks… Energy supplier AfriMaterials announces a new solar farm next to the indus-

trial estate of Tema… And don’t forget your 7:30 with Mr Solarin.”

Fatima sighs and rolls over. “Dammit.

Dammit!” Lawal was playing with her.

A veteran of the long war between the mobile phone companies and the banks on the continent, Abouzeid is now in the frontline of a new battle. The Nigerian/South African consortium and her own consolidated NorthAfricaBank

are struggling to be top dog in the financial landscape. Echobank was the last big player up for grabs, and she had flown there to sound them out. It looked like she had company…

This is, of course, fantasy. There is no way a bullet train will soon ● ● ●

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cross the Sahara. The rest is in the realm of possibility. Technology, consolidation, fast-rising urban centres and changing industrial structures will all reshape African banks. So who will survive, and who will thrive?

There are issues that may trip up today’s bankers, both from the current global economic malaise and from problems such as the correspondent banking drought caused by new global banking regulations. This hits African banks, which need partner banks to complete transactions for their clients in foreign countries. J.P. Morgan and Citibank have already cut ties to 500 foreign lenders, says Adebisi Lamikanra, a partner at the KPMG consultancy in Nigeria.

But in the longer term, the real threat to banks is from technology. It is now moving much faster than banks, which are “by nature conservative, bureaucratic and not known as being the most innovative of institutions,” according to Brian Richardson of South African financial technology company Wizzit. ●●●

HERE COME THE DISRUPTORS Just as disruptors like Uber and Airbnb are shaking up the taxi and hotel industry, new competitors want to eat the lunch of the banks in core banking functions: payments, storing value and credit. They will do it without bringing with them expensive ‘legacy’ infrastructure such as brick and mortar retail outlets. And they will use ‘big data’ to swiftly gauge creditworthiness. “In 10 for example, bought a stake in a bank, years’ time, the technology will be so Groupama Banque, in April to help it good,” says Andrew Nevin, chief ecoto offer payment services. nomist at PwC consultants in Lagos, Does this all add up to an existential “that when someone applies for a loan, the only question you will ask is: ‘Can crisis for banks in Africa and across we access your data?’” the world? Barclays Africa Group’s For Brett King, co-founder of United chief data officer Yasaman Hadjibashi States-based banking app Moven, by does not see it that way: “It’s true that 2025 the dominant form of bank acbetween 2013 and 2015 it looked like count will be mobile. “It won’t even be close. Banks that are IN 10 YEARS’ TIME WHEN SOMEONE geared towards distribution APPLIES FOR A LOAN THE ONLY of bank products and services QUESTION YOU WILL ASK using physical branches will IS: ‘CAN WE ACCESS YOUR DATA?’ be in rapid decline.”

There are also large players impinging on the payments space. this was a serious threat,” Hadjibashi They include Alibaba from China and says. “Today, we are much more likely PayPal, Amazon and the forthcoming to offer equity finance to interesting Google Pay. M-Pesa has been a roaring fintech companies. It’s about collabsuccess for Kenya’s two largest mobile oration, not necessarily competition.” network operators, Safaricom and VoSafaricom’s M-Pesa is now providdacom, and others are coming to maring loans, but in partnership with KCB ket with new ideas. France’s Orange, Group – Kenya’s largest bank by assets.

It has given out KSh10.3bn ($101.6m) in credit since 2015. That represents just 0.5% of total bank lending in Kenya.

Wizzit’s Richardson agrees, saying that the pushing is even occasionally going the other way. For example, Equity Bank in Kenya and First National Bank in South Africa have mobile phone licences to compete in the telecom space.

While you might have thought that the customer-handling and marketing skills of a mobile phone company would be the ideal partner for a bank, many problems arise in the few attempted marriages. “Who owns the customer, for example?”, asks Richardson.

BANKS MUST ADAPT Even banking doom-mongers like Moven’s Kingargue that things like credit, especially for larger sums, will remain proper to banks. He explains: “It is more heavily regulated and requires a significant understanding of risk.” He also points

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that you can’t have multiple apps all running off the same platform,” he adds.

This also gets to a serious trouble spot for African banks – the back office, where the hard grind of processing payments, clearance and position-taking happens. Oluwatoyin Sanni, the group chief executive of United Capital, a Nigerian investment bank, says that a lot of work needs to be done on this across the board. “In a lot of markets, it’s still grossly underdeveloped,” she says.

out that a startup is less likely to be able to scale up in the same way a bank might.

Nonetheless, Richardson says banks still need to find ways to adapt, and fast. While many banks may have developed a mobile-banking app, they are often a one-size-fits-all solution, instead of specially tailored to students, workforce entrants, senior executives or pensioners. “There is a perception

While banks are buffeted by pressing daily concerns, they need to be checking in their rearview mirror.

The payments space is particularly crowded, with big and small competitors to traditional banks all allowing consumers to buy and sell on their own platforms, while financial technology firms may even be pushing hard into the lending arena.

PayPal Amazon Fintech companies Mobile phone firms ●

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She explains: “We want to bring authenticity back. Obviously, we can’t go round to our hundreds of thousands of customers daily, so it has to be done with examining patterns of lifestyles: Where do you shop? What do you buy? We see you got married. We see you have kids.

What can we offer you based on that?”

This is not an easy task. As Nitin Rakesh, chief executive of US-based fintech company Syntel, told reporters: “It’s like changing the wheels on a moving car.” But the banks that evolve will be best placed to pick up the customer of tomorrow: the millennials, the largest cohort of youth to emerge in the history of the world. For PwC’s Nevin, working with 17-24 year olds will re-

INNOVATION SHARING Sanni argues that the successful financial institutions of tomorrow will not be those that spend massive amounts on their own platforms but rather those who use open information technology (IT) architectures: ORGANISATIONS WILL CHANGE “In the mutual fund industry, FROM A NINE-TO-FIVE CULTURE for example, a lot of the adTO A TASK-ORIENTED WORKFORCE ministration and processing THAT WORKS MORE FLEXIBLY of information is being shared on an industry-wide basis.

Similar innovations can be used to quire “an easily explicable offer, paying help banks shed more weight and share 6% interest, no charges to move money back-office resources,” she says. around, branchless banking, perhaps Those IT systems, even with a revamp, discounts in their mobile phone bundle.” need to be better used, says Barclays Millennials are also the talent pool in which African banks are fishing to Africa Group’s Hadjibashi. Understanding the streams of data that come from staff their operations. A recent report by individuals is critical for banks, especonsultants EY on transforming talents cially less obvious data points such as shows that people born between 1981 and 2000 will comprise 72% of the global a person’s social-media profile. Banks could also make better use of data they workforce by 2025. It preaches building already hold, such as transaction histeams from a broader mix of people and predicts that organisations will change tories or clients’ interactions with the from a nine-to-five culture, where everybank. “Eighty per cent of information one turns up to the office for a day’s work, sitting in big banks today is still not to a task-oriented workforce that works being fully utilised”, she says. more flexibly from various locations.

Banking group Atlas Mara co-founder Ashish Thakkar (see page 26) tells The Ziyad Bundhun, chief finance and Africa Report that you do not want to get investment executive with Rogers & Co ahead of the customer and that human in Mauritius, has big ideas about what contact is valued, too. Hadjibashi says is to come in terms of the relationship using data to build holistic pictures of between banks and manufacturers: “The future is all about green ● ● ● customers may help bridge that gap.

Google Pay

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● ● ● energy, the integration of the Internet of Things into manufacturing processes, the mining of polymetallic nodules from the sea bed,” he says. He also argues that the students he meets today are still too conservative in their career choices, studying banking, accountancy and law rather than looking at how the world is changing: “Industrialisation is about material science!”

This idea that tomorrow’s banker needs to get closer to industry has long roots. Germany’s Mittelstand, the richly woven network of middle-sized companies, has ties to lots of mid-size banks that have grown up alongside the companies they finance. The bankers have gained a great deal of industry experience in the process, something which has benefited all partners.

THE FINTECH FRONTIER Kenya’s banks are lending based on creditworthiness data garnered from how people use their mobile phones

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enya may be one of the continent’s fastestgrowing economies, but only 34% of Kenyans use any type of credit instrument, according to data published by the central bank in February. This is largely due to a lack of data on credit history. Such information helps lenders determine the likelihood that an applicant will repay a loan.

The country’s vibrant technology scene is hard at work addressing the problem of a lack of data. Thanks to Kenya’s love affair with mobile money – which has seen the popular M-Pesa service process transactions worth 85% of the country’s economic output in the past year alone – vast amounts of consumer data are being produced. This has made the country a fertile testing ground for new ways to determine creditworthiness.

Tala, a loan service launched

by United States-based startup InVenture in 2014, has applicants answer a series of basic questions on their Android phone app before making a decision on a loan application. Mobile data is taken into account in this process. For example, if a loan applicant has included both first and last names in at least 40% of their mobile phone contacts, they are 16 times more likely to repay

their loan promptly, according to research from the company.

Banks are also using data provided by employers – such as taxi app Uber’s driver ratings – to determine whether or not they should offer a loan. Mid-sized Kenyan commercial bank Sidian has earmarked $99m for loans to Uber drivers for the ride-hailing app. In order to qualify for a loan, the driver must have made 500 journeys and gained a user rating of at least 4.6 out of five stars.

The rise of creditworthiness data has given way to a high-level partnership between the country’s biggest lender, KCB Group, and its most popular telecoms operator, Safaricom. Together, the firms have dispensed $150m in loans to hundreds of thousands of people since March of last year. The lenders say they accept 80% of applicants and provide an average loan of $40. So far, less than 2% of borrowers have defaulted.

Kenyan fintech companies are eager to expand their services to other countries in the region. Equity Bank, another bank that lends through mobile technology, is poised to take its service into new markets.

The bank said on 23 August that it will offer its Equitel mobile credit service in Uganda, Rwanda and Tanzania by the end of the year. ● Mark Anderson

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DEEPER UNDERSTANDING Francis Mwangi, head of research at Standard Investment Bank in Kenya, recommends Africa’s next financiers to benefit from “deep analysis and understanding of industries, companies and economies. This is the only way banks will adequately serve both underserved small and medium-sized enterprises (SMEs), new industries and large industries transcending multiplejurisdictions.”

Might Nigeria’s bankers have been so badly burned in the toxic asset crisis of 2009 if they’d had better understanding of the margin lending and energy sector companies which led to their downfall?

United Capital’s Sanni agrees that expertise, closer relationships with different types of clients and “more specialised banking groups or divisions within particular banks” would be helpful. This could prove a survival route for middle-sized banks in Nigeria.

“Diamond, Skye, FCMB, Fidelity – they are all going to have to have a distinctive strategy because they are too far away.

They are not going to challenge the big banks in terms of economies of scale and size,” warns PwC’s Nevin in Lagos. He says that another wave of bank consolidation is possible in Nigeria.

Certainly, Nigerian banks face a particular challenge, with an economy so skewed towards servicing the oil sector – almost a caricature of an Africa-wide problem. Sanni says this is both an opportunity and an imperative for the diversification of the continent’s economies.

She targets agriculture, mining, SMEs and manufacturing as the major opportunities in Nigeria and across Africa.

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– Attijariwafa Bank and BMCE Bank of Africa; Togo-based Ecobank, itself a big player in Nigeria after the purchase of the bailed-out Oceanic Bank in 2011; Nigeria’s United Bank for Africa and Zenith Bank; and the South African giants Standard Bank, First Rand Group, Nedbank and Barclays Africa Group – the South African subsidiary of Barclays, part of which is now up for sale.

“And, of course, it’s tough because these other sectors are historically tougher to finance,” she adds.

To get round that, the banker of tomorrow needs to be more innovative in structuring funding for clients. “We can layer it, derisk it to some extent,” says Sanni.

“When it’s a long-term manufacturing project, look for development banks to take on some aspects of the funding such the infrastructure component. The commercial banks can take the working capital.” She also says there is room for more credit enhancement institutions and export credit agencies, something that the ministers of finance of the future should be working on today.

TARGETING TECH There are other opportunities, too, for agile banks looking to extend their footprint outside of their traditional industrial stomping grounds. Yabacon Valley, the nickname for a Lagos neighbourTHE AFRIC A REPORT

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FELL THE BARRIERS As Africa’s economies expand, there will be room for all of them, says United Capital’s Sanni. She welcomes foreign banks fleeing a lack of yield in the West caused by near-zero interest rates after nearly a decade of quantitative easing.

Sanni concludes: “We still have a very large unbanked population.”Technology will help bring in some of Africa’s great unbanked masses, with new companies using data points such as how people store contacts on their phone to gauge creditworthiness (see box).

The regulator of tomorrow has a role to play, too. After the World Trade Center attacks in New York in 2001, stringent ‘know your customer’ regulations have acted as a barrier to participating in the formal banking sector for people who may not have a formal address or a birth certificate. “Take the example of a farm labourer who is earning under $200 a month”, says Wizzit’s Richardson. “How much money-laundering or terrorist financing is he really going to be doing? By having this enormous [demand for] paperwork, we are not allowing him into the system.”

He points to countries that have adopted a risk-based system, with maximum transaction limits and maximum balance limits for those without good paperwork. This is a way of getting

hood called Yaba, sits at the confluence of the Yaba College of Technology and the University of Lagos.

It is the hub of a thriving technology startup scene and is attracting venture capitalists who see possibilities in a country where 20 million people will have smartphones by 2018. Those companies, if viable, may just need a banker specialised in technology once they leave their startup period in a few years time.

Meanwhile, at the other end TECHNOLOGY WILL HELP BRING of the scale, large pan-African IN SOME OF AFRICA’S UNBANKED banking groups will continue MASSES, WITH DATA POINTS USED their attempt to stitch together TO GAUGE CREDITWORTHINESS a string of outposts across West, East, Central and North Africa. people integrated into the banking sysBanks need to be prepared for the growth in intra-continental ties too. “There is tem while they improve their documentation. Richardson’s radical proposal? going to be more investment, trade, and “When people are born, they should get cross-border employment across Africa a birth certificate and a bank account over the next decade,” says PwC’s Nevin. as a fundamental right.” Regulators and So who will be top dog? The leaders bankers of tomorrow might agree. ● in this current war are: Moroccan banks

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(L-R) ASHISH THAKKAR, FRANNIE LEAUTIER AND PATRICE MOTSEPE, STEERING A COURSE THROUGH CHOPPY WATERS

FACES OF FINANCE While banks are bracing for difficult times due to weak global growth prospects and the impact of the commodity downturn, Africa’s brightest financiers are not likely to waste the opportunities that economic change can bring. A steely will, clear head and ability to see further than plummeting profits are shared by these leaders, whether their pitch is in banking consolidation, financial services or development finance.

By Nicholas Norbrook, Charlie Hamilton and Gillian Parker-Brock

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Ashish Thakkar A BULL SURROUNDED BY BEARS The banking group Atlas Mara posted a first-quarter loss of $6.7 and plans to shed a third of its staff in drastic cost-cutting. Still, co-founder Ashish Thakkar is bouyant and takes the long view

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rofit warnings and struggling subsidiaries are proving a difficult second chapter for Atlas Mara, the group co-founded by former Barclays boss Bob Diamond and Mara Group chief executive Ashish Thakkar.

That doesn’t make Atlas Mara exceptional: banks across Africa are struggling with inflation linked to currency depreciation and the economic gloom cast by the commodity slump. Nigeria encapsulates many of these problems, with an economy and currency locked on to the oil price. Atlas Mara’s stake in Union Bank of Nigeria – around a fifth of the lender – will be a cause for concern as investors take a second look at exposures local banks might have to struggling energy-sector companies.

NOT OUT OF THE GAME Atlas Mara raised $325m with its IPO in 2013 and purchased a string of banks in Africa. In addition to the Nigerian operation, it bought BancABC – which operates in Botswana, Zimbabwe, Mozambique, Tanzania and Zambia – and Banque Populaire du Rwanda. The downturn has not stopped the company from shopping for acquisitions. In July, it purchased Finance Bank Zambia, which will be combined with the local subsidiary of BancABC to form Zambia’s largest bank in terms of branches.

In 2016, Atlas Mara posted a loss of $6.7m for the first quarter, citing high operating costs and bad loans in Zimbabwe. On 24 August (after this interview was conducted) the company announced it would shed up to 35% of its staff in a cost-cutting drive to save $8m in operating costs.

With its shares having lost 76% of their initial value does Thakkar – in his quieter moments – worry that his company bought at the top of the market?

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“We never once thought to ourselves that this is a three- or four-year thing,” Thakkar tells The Africa Report as he outlines the long-term vision for the company. “Naturally, our continent has had some serious headwinds over the past 12-18 months. It’s not a specifically Atlas Mara-related thing; it’s hitting financial institutions across the continent.”

His pitch is that the company is different. “We are disrupting an old-

school, traditional industry. No one ever said it was going to be easy, but it’s going to be worth it.”

He argues that technology will be revolutionary: “The fact that we are going to have 700m smartphones on the continent in the next five years, that’s going to be game-changing. We are really underestimating the effect that this is going to have. It’s going to change the way people live. And I’m not being dramatic here: commerce,

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BEN KRUGER The Standard Bank Group CEO reported a 4.7% rise in headline earnings to R10.86bn ($808m) in the six months to 30 June, despite drought, low commodity prices and poor growth.

ABDEL FATTAH AL-SISI The Egyptian president was rewarded with the promise of a $2bn deposit after hosting Saudi Arabia’s King Salman in August.

The tidy sum will help Egypt fulfil conditions for an IMF loan.

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INNOCENT ONDOA NKOU The former deputy director general of Cameroon’s Banque Internationale du Cameroun pour l’Epargne et le Crédit (Bicec) was arrested as part of a probe into misappropriation of some €6.9m.

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OBI EZEUDE The CEO of Nigerian biscuitmaker Beloxxi had reason to break out the cream crackers after getting $80 of private equity investment from Bob Geldof’s 8 Miles fund.

HENRY ROTICH The opinion of Kenya’s finance minister was ignored

by President Uhuru Kenyatta, who signed into law a capping of interest rates on 24 August despite treasury opposition.

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TECH AND TRAD Commerce, too, is now feeling the disruption caused by technology. Nigeria has several successful e-commerce ventures such as Konga and Jumia.

“Lagos, with 20 million people, has three shopping malls. You are never going to be able to serve the population with retail with that,” says Thakkar.

“Yet the demand is absolutely there.”

The sweet spot for Thakkar is to marry the strengths of technology and the core banking platform of a traditional bank. “We’ve had the mobile-money revolution led by telecom companies.

We now need a mobile-banking revolution led by financial institutions,” he says. “We have a full-time chief digital officer, Chidi Okpala. He ran mobile money for Airtel across Africa. Now [for us] he has a mandate to focus on nothing but this.”

While the digital gurus build up the business plan to hit retail customers at low costs, in the boardroom there are still some strategic decisions to be made. Barclays’ announcement of a sell-off of some of its shares in Barclays Africa Group prompted many to suspect Bob Diamond would pitch to get a piece of his former empire back.

Atlas Mara is too small to bid for Barclays stake in Barclays Africa, given fiduciary rules in Britain. But a consortium including Diamond-run Atlas Merchant Capital, the private-equity fund Carlyle and Mara Group might be planning a bid for the remaining 51% stake in Barclays Africa. “The two organisations have expressed interest in it, and if we were successful we could envisage a combination of those entities,” says Thakkar, remaining tightlipped, “but it’s the very early stages.” ●

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banking, healthcare, education, agriculture – everything is going to be affected by this new ecosystem.”

This is already visible in Africa, in the telecommunications sector, says Thakkar: “For countries with outdated [telecoms] infrastructure, it’s such a nightmare for them to leapfrog. How many households or offices have landlines in Africa today? That’s a pretty big thing. How many grandmothers in rural Kenya are comfortable with mobilemoney applications? For them, its normal having money on their phone. Show me a grandmother in the United States for whom that is normal.”

CATHERINE SAMBA-PANZA The former transitional president of CAR has to answer tough questions from the auditor general about what happened to a quarter of the $10m donation she received from Angola in 2014.

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surprise sacking of five of the bank’s vice-presidents at the end of 2015, which made space for Leautier’s appointment, was designed to herald the start of a new era of efficiency at the AfDB as it seeks to attract tens of billions of dollars in new investment to fund the bank’s ambitious pledges to finance agriculture and energy generation.

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Frannie Leautier FIRST THE WORLD, THEN AFRICA The former World Bank vice-president is now the senior vice-president at the AfDB, hoping to bring her global and Asia-focused expertise to the continent

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he African Development Bank’s (AfDB) new senior vicepresident, Frannie Leautier, has made no secret of her priorities for transforming Africa. Infrastructure and energy development, economic diversification and developing the human resources of the continent’s rapidly growing population are the keys to Africa’s future prosperity, she says.

Her job is to help the bank provide the finance to enable this growth.

More than a quarter of a century working in economics and finance has made this shrewd Tanzanian more than aware of the difficulties that driving the continent forward entails. “When countries make progress on implementation, they slide back on policy or dynamic capacity,” she told media in 2013. “We need to get to a point where we make progress on multiple fronts.”

Known as a no-nonsense, resultsdriven economist and development expert, Leautier is bringing a wealth of experience from both the public and private sector backed up by the academic

ASIAN INSIGHT Changing the course of such a large organisation will require all the organisational skills the Massachusetts Institute of Technology doctoral graduate honed during her years working for the World Bank. She joined the Bank in 1992 as a research economist working on Latin America and Asia, and rose rapidly through the ranks, becoming chief of staff for World Bank president James Wolfensohn in 2000, before she was named vice-president and head of the World Bank Institute in 2001, a post she held for six years.

This knowledge of the Asian market could prove particularly valuable as the AfDB seeks to court additional funding from China and increasingly India, which has its sights set on gaining a firmer foothold on the continent.

The bank’s Asia pivot is seemingly gaining ground with the announcement last year by Prime Minister Narendra Modi that India would extend $10bn in credit. This was followed by the news in May by the head of the Export-Import (Exim) Bank of India that it would provide $10bn in financing for African health projects; however there were contradictory reports as to whether the Exim Bank cash was new money or simply the money Modi had announced. As a sign of the deepening ties, the AfDB will hold its 2017 annual meeting in Ahmedabad, around 775km from Delhi.

gravitasfromhertimeteachinggraduates at Paris’s Sciences Po university.

She cut her teeth in the private sector with the 2007 launch of risk advisory firm The Fezembat Group, which offers consultancy services to firms seeking to invest in mining, infrastructure and energy in frontier and emerging markets. In 2013, she co-founded the $200m Mkopa Private Equity Fund, focused on providing finance to sub-Saharan small businesses.

However, it is not just the Cool-headed Leautier will need all challenges of helping drive her guile to manoeuvre through reform of the continent’s 54 the minefield of AfDB bureaucracy countries that she must navigate. Leautier has a hardThroughout Leautier’s career she has won reputation for efficiency and coolheaded strategic acumen, and she will combined her professional ambition with her passion for championing the need all her guile to manoeuvre through the minefield of AfDB bureaucracy. cause of gender equality, which earned Since new broom and former agriher the nickname Nkosuohemaa, meaning “Queen of development” in Ghana’s culture minister Akinwumi Adesina Ahanta language, for her work on a replaced Donald Kaberuka at the helm project to remove barriers and improve of the AfDB in September last year, the access to education for girls. ● Nigerian has sought to turn a page and Charlie Hamilton re-energise the bank’s operations. His THE AFRIC A REPORT

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PEOPLE

Patrice Motsepe A POT OF GOLD AT THE END OF THE RAINBOW Drawing on his experience in turning round struggling mining companies, South African billionaire Motsepe is moving into financial services with a new investment firm, African Rainbow Capital

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outh Africa’s first black billionaire, Patrice Motsepe, 54, is making a big move into the finance sector through the newly launched African Rainbow Capital (ARC). ARC is set to invest in banking, asset management, real estate and healthcare companies. Motsepe is undeterred by the low economic growth and political uncertainty dogging South Africa that has dented his fortunes.

Motsepe has a stake in Sanlam, a listed financial services firm that has partnered with his company UbuntuBotho Investment (UBI) for his latest venture, African Rainbow Capital (ARC), a black-owned firm focusing on financial services and private-equity investments. Taking more than 10 years to come to fruition, ARC encapsulates the mining mogul’s penchant for turning companies around. The venture is headed by his colleagues Johan van Zyl, a former Sanlam chief executive officer, and Johan van der Merwe, a former chief executive of Sanlam Investments.

Last month ARC made its first foray into the residential real-estate market with the purchase of a 20% stake in Val de Vie Investments, which owns the Val de Vie Estate in the Paarl district of the Western Cape. The acquisition is expected to help finance upgrades – including a bridge – to the luxury site, which already boasts vineyards, parks and an exclusive golf course.

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ALL RIGHTS RESERVED

Appointments

Omobola Johnson

ALL RIGHTS RESERVED

Following the resignation of Michael Ade-Ojo on 23 June, Johnson was given the role as the new chairperson of Nigerian insurance company Custodian & Allied. She was communications technology minister in Goodluck Jonathan’s government.

Peter Matlare The former Tiger Brands head was named as the new deputy chief executive of Barclays Africa Group, effective from 1 August. Current deputy chief executive David Hodnett will be responsible for South Africa and Matlare the rest of the continent.

ALL RIGHTS RESERVED

In March, ARC pledged R50m ($3.5m) The Motsepe Foundation, founded to Capital Appreciation, a special purin 1999 and which oversees the philpose acquisition company. In the same anthropic work by the family, is run month, ARC and insurer Sanlam inveswith his wife, Precious. ted R200m in insurance broker Indwe As a member of the royal clan in the Broker Holdings. Other investments Tswana tribe Motsepe has the title of a prince, but his celebrity status in South include AfroCentric Group, which Africa is a far cry from his beginnings provides healthcare services; Metroin the sprawling township of Soweto.

Fibre Networx, a fibre broadband firm; Motsepe’s father, Augustine Motsepe, and PayProp, a rental-property manager.

Van Zyl hints that more announcewas a critic of the apartheid regime ments will be made in the coming and was removed from Soweto by the government to Hammanskraal, a rural months. In the next three years, ARC area north of Pretoria. There, he opened is likely to change tack and open the a grocery store, beer hall and restaurfund to other investors. “Five years from now, we would like to have a wide ant. Patrice first learned the intricacies variety of shareholders in ARC, where of running a business working in his people can come in and out. A listing father’s shop at the age of seven. is a possible way to achieve that,” he says. ARC plans to double the size of DUST TO DOLLARS its business in the next 10 years.

At the end of apartheid in 1994, by Motsepe created UBI in 2004 to be then a trained lawyer, Motsepe venSanlam’s Black Economic Empowertured into mining, at first gleaning ment (BEE) partner. UBI is part-owned gold dust from the inside of fading by community development trusts and mines before buying up unprofitable other empowerment groups.

Motsepe has familial links In the next three years African to the highest echelons of Rainbow Capital is likely to open power. His sister, Bridgette the fund to other investors Radebe, is married to Jeff Radebe, a minister in the shafts from AngloGold when the price presidency. His other brother-in-law of gold was nosediving in 1997. A decis business tycoon and deputy presade later, Motsepe had swallowed up ident Cyril Ramaphosa. The African and merged a diverse set of mining National Congress government under the charge of President Jacob Zuma has companies, turning a small mining recently been blasted for its ties with services business into South Africa’s the Gupta family. Van Zyl insists that first black-owned mining conglomerate, African Rainbow Minerals (ARM).

ARC does not generally deal with govIn March, ARM said its first-half ernment. “We don’t bid for government contracts. We haven’t done that in the profit had halved from the year bepast. We don’t plan to do that into the fore due to lower commodity prices. future. Mr Motsepe is very careful and The diversified mining group, which has steered clear of getting involved processes iron, manganese, chrome, platinum, copper, nickel, coal and gold, in government. Everything he does is has reassured investors by cutting jobs scrutinised. He has always been clear and slashing spending.

– arm’s length in our kind of business.

Motsepe’s rapid accumulation of We don’t meet government.” wealth adds to the canon of criticism in South Africa that the shift to democracy PHILANTHROPY has proved to serve a wealthy elite. The Motsepe turned to mining at the end criticism comes on the back of a law of apartheid in South Africa, backing to ensure a larger share of black ownwhat looked like a losing horse. He ership of companies in an attempt to struck gold and his net worth reached $1.44bn. But his fortunes have tumbled redress the inequalities of apartheid. significantly in the face of the recent Black Economic Empowerment, which stipulates that companies should be economic headwinds. Nevertheless, at least 26% black-owned, has been in 2013, he became the first African lambasted by some, who level charges to participate in the Giving Pledge, that it is a form of cronyism. ● which encourages billionaires to Gillian Parker-Brock in Johannesburg donate half their fortune to charity.

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Benjamin Dabrah Finance Bank Zambia (FBZ) got a new managing director in July after the bank’s new owner, Atlas Mara, poached Dabrah from Standard Chartered Bank, where he was chief risk officer for Africa. Atlas bought FBZ in July for $61m and 3.3m shares.

A N EM ERGIN G C OUN TRY B Y 2 0 2 0 REASONS TO INVEST IN CÔTE D’IVOIRE ≥ Dynamic economy • Around 10% growth per year since 2012.

• A determined strategy to join the ranks of emerging markets by 2020.

• The 2016-2020 National Development Plan aims to achieve high growth with job creation, based on the development of industry, services and human capital.

≥ Solid assets • Security for people and property.

• A young population (77.7% of Ivorians are under 35 years of age), a cosmopolitan nation (25% foreign residents) and ongoing investment in education and health.

• Modern infrastructure that is being continuously improved and built, particularly that of transport and electricity.

• A domestic market with high potential: 23.3 million people, with a purchasing power that has increased by 15% over the last three years.

≥ Recognised skills • Quality agricultural production, first in the world for cocoa and cashew nuts, first in Africa for rubber and dessert bananas and the world’s leading exporter of palm oil products.

• Increased private investment accounting for over 60% of total investments in the country. The goal is to reach 70% by 2020.

• A powerful and dynamic financial sector with a 28% market share of the whole of Francophone West Africa.

• West Africa’s biggest and most modern distribution network (shopping centres, hypermarkets and supermarkets).

≥ Pivotal to booming markets • West African powerhouse (ECOWAS, 15 countries, 340 million people, 20th largest economy in the world).

• The biggest economy in the Francophone sub-region (WAEMU, eight countries, 100 million people).

• Côte d’Ivoire spearheads the regional integration policy that promotes economic development.

NATIONAL DEVELOPMENT PLAN

Companies are the main engine of growth Just as it was between 2012 and 2016 to accelerate growth and development, Côte d’Ivoire’s economic policy is aligned with the 2016-2020 National Development Plan (NDP) which aims to inject 30,000 billion CFA francs (45 billion euros) into the economy, of which at least 60% is expected to come from the private sector. The development of human capital through quality training features strongly in this new programme, as well as increased processing of raw materials and new

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infrastructure. The 2016-2020 NDP will enable Côte d’Ivoire’s GDP to grow 65% and reach 31,582 billion ≥ The Port of Abidjan is one West Africa’s most dynamic harbours.

CFA francs by 2020.

A N EM ERGIN G C OUN TRY B Y 2 0 2 0

A SINGLE WINDOW FOR PRIVATE INVESTMENT

≥ The new interchange connecting the Henri Konan Bédié Bridge to Abidjan.

≥ Business-friendly legal framework • Tax and customs exemptions during the investment period.

• Full tax exemption on profits, patents and land for 5, 8 or 15 years (depending on company location).

• Specific exemptions for SMEs and SMIs. • Thanks to its Ease of Starting a Business indicators, Côte d’Ivoire ranks amongst the world Top 50 in the Doing Business report, with the number of formalities, a time frame and minimum required capital similar to those of OECD countries.

≥ Investment opportunities in growth sectors • In the agribusiness sector, the strategy is to process 100% of cocoa production (as against the current 35%), of which 50% will be finished products, and 100% of cashew nuts (currently 14%).

• The construction industry and its various components are booming, spurred by housing programmes and

The Côte d’Ivoire Investment Promotion Agency (CEPICI) facilitates introductions, discussions and cooperation between the public and private sectors. It also hosts the Investment Single Window, a one-stop service that assists investors and companies with setting up procedures.

It has proved phenomenal: 9,430 businesses set up in 2015 (+45% in one year) and 670 billion CFA francs of approved investments (+57%), with job creation projected at 41,700 jobs.

www.cepici.gouv.ci/en/ the revival and completion of major projects.

• The mining sector is extremely attractive with gold production increasing 17% in 2015.

• The services sector continues to grow, particularly tourism and ICT, which are both posting over 15% annual growth.

• Headquarters of the BRVM, the stockmarket common to the eight WAEMU countries.

• Headquarters of the African Development Bank.

• Headquarters of the International Cocoa Organisation (ICCO).

• Host city of the eighth Francophone Games in 2017.

≥ Industry is the new priority for economic development.

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≥ Abidjan, an African and international capital

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UBA

BANKING ON AFRICA The Nigerian bank is extending its operations to an additional seven African markets at a time of trouble at home. Will it be an overextension or a successful diversification strategy?

By Charles Idem in Lagos

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rrive in 18 different countries in Africa – more often than not in the capital city – and you will be met by the bright red branding of a United Bank for Africa (UBA) branch.

That number is soon set to swell. The Nigerian lender has decided to embark on a fresh round of expansion after a period of consolidation.

The Nigeria-based banking franchise operates subsidiaries in 18 African countries, with 10 of these in Francophone Africa, and has set its sights on being in 25 countries over the “short to medium term”, according to recent comments by

group chief executive Tony Elumelu.

His bullish plans may be driven by the bank’s annual results for 2015, which revealed the subsidiaries contributed 25% of its $1.6bn total income, up from 12% in 2013. An objective of the bank’s three-year roadmap announced in 2013 is to have 50% of its balance sheet from its operations on the continent – excluding Nigeria – by 2016.

Those plans may be driven by a need to compensate for a slowdown in its core Nigerian market which, along with several African economies, is reeling from a drop in oil and commodity prices. The International Monetary

Fund’s updated growth forecast published in July projects that Nigeria’s economy will contract by 1.8% in 2016.

Oluwatoyin Sanni, the chief executive of United Capital, a former subsidiary of UBA Group, explains the challenges: “Certainly, these are trying times for the next 12-24 months.” The investment bank was spun off after the government imposed a new regulatory regime in 2009 following Nigeria’s banking meltdown.

But, critically, Sanni says that Nigeria’s banks have learnt their lesson: “I do not see this traumatising the economy [beyond that period], but a lot of work will be needed to restructure and recover.”

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ALL ROADS LEAD TO... BURKINA FASO. UBA’S OUAGADOUGOU OFFICE, PART OF ITS PUSH INTO FRANCOPHONE AFRICA

Kato Mukuru, head of equities research at Exotix Partners, a Londonbased investment firm, argues that “it makes sense for the banks to diversify and mitigate the risks of their businesses being tied to economies that move up and down with resourceprice fluctuations.”

CROSS-COUNTRY IS KING It is not yet clear what markets UBA is aiming to enter as it is yet to provide further details on its plans. Certainly, it will be a politically popular move.

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business ties with each other, hammering the importance of regional integration as a way of spurring development.

With statistics showing low trade within Africa – only 14% of Africa’s total trade is done on the continent – political and business leaders have been lobbying African banking franchises to capitalise on and facilitate increased trade by leveraging their cross-country networks.

But are pan-African groups succeeding, and do they provide a model for UBA? Ecobank Transnational, the largest pan-African bank with operations in 36 countries, announced in June that it is reviewing its activities in

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certain countries to decide whether to continue or shut down products and branches. Ecobank faces cross-border regulatory issues, something UBA will also have to address.

South Africa’s Standard Bank, which runs the largest pan-African banking group by assets, followed large corporate clients such as telecoms company MTN into other African markets. But, outside of Dangote Cement, Nigeria lacks a cohort of big companies that could play this path-beater role.

Morocco’s Attijariwafa Bank has often ridden into sub-Saharan African markets such as Senegal and Côte d’Ivoire

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BANKING

with a savvy mix of state power and economic diplomacy – something that the Nigerian state is yet to master.

But UBA remains optimistic. At a management retreat in March, which brought together the chairmen and chief executives of all its subsidiaries on the continent, the chief financial officer Ugo Nwaghodoh laid out a vision: the bank sees potential in African markets the breadth of the continent, particularly in agriculture and agroallied processing, mining and information and communications technology sectors. Nwaghodoh tells The Africa Report that the infrastructure gap is further evidence of the immense potential for credit growth. He adds:“The low industrial base [in sub-Saharan Africa] portends huge opportunities over the near to medium term as the economies are being reformed to meet fast-growing demand from the teeming population.”

UBA also wants geographical scale to fund trade. Speaking at a bankers’ forum in Lagos on the eve of his retirement in July, previous group chief executive Philips Oduoza stated that the bank’s Africa footprint has helped it to better execute letters of credit, while a group-wide shared services platform has fuelled standardisation and costcutting across its operations.

UBA CEO TONY ELUMELU HAS PLEDGED TO BOOST THE BANK’S FOOTPRINT FROM 18 COUNTRIES TO 25

only in the second half of the list of 23 banks present in the market, booking revenues of N3.6bn ($10.6m) in 2015, versus N7.4bn in Burkina Faso. In countries with less competition, like Sierra Leone, income went up 62%, while it rose 47% in the Republic of Congo and a startling 228% in Guinea.

The bank’s biggest challenge will be making a return on its expansion outlay.

BROAD NOT DEEP Beyond the corporate rhetoric, how have UBA’s existing African subsidiaries actually fared? Available data suggest that the bank is spread widely rather than deeply: despite its relatively extensive footprint, the bank has a sizeable share of the market in six of the 18 markets it is present in, where its share of deposits is 5% or greater.

In Central and East Africa, as well as in a number of its West UBA's African markets, UBA held Francophone less than 5% of total sector footprint deposits. Regulators regard UBA as a systematicChad Senegal Burkina ally important bank in its Guinea home country of Nigeria Benin Cote and in Burkina Faso, where Cameroun Cameroon d’Ivoire it holds above 10% of total Congo Gabon banking sector deposits.

DR Congo Could it be that UBA thrives best where competition is still low? While UBA’s Burkina Faso unit fares well, across the border in Côte d’Ivoire – a much tougher market with Moroccan and now South African competitors added to strong local players – UBA is

Executing this will be a big challenge as the bank will need to think hard about its operating model in each of its markets.

Exotix’s Mukuru suggests UBA needs to be clear on whether it will be a top-five player or just have a mere presence in the countries, which may not be beneficial in the grand scheme.

Across its footprint, UBA is pursuing a retail customer strategy as external forces exert pressure on African economies, resulting in less attractive corporate and public sector businesses. In Cameroon, which is regarded as a model of success within the group, the bank uses an agency banking model to give young people loans. UBA has been in the Cameroonian market since 2007.

INTO THE BLACK This strategy may well be driven in the new target markets by a rising star within the group, Emeke Iweriebor. He previously served as managing director of UBA Cameroon, the group’s first African subsidiary outside of Nigeria.

Iweriebor is mainly responsible for the operations of the 10 Francophone units in addition to heading up the expansion into new territories.

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Certainly, having staff who know the terrain is starting to help. After failing to make a profit for its first few years, UBA’s Kenyan subsidiary finally went into profit for the first time last year pocketing N557m under the stewardship of its first Kenyan managing director, Isaac Mwigwe. He has been rewarded with a cash injection by the head office. An additional KSh1bn ($9.9m) has brought the capital base of UBA Kenya to KSh2.4bn. This may be part of a new East African drive for the group, with new capital promised for the Ugandan and Tanzanian units too.

TARGETING NEW TALENT It will also help the Kenyan unit in its ambitions to target the corporate segment, in a shift in the unit’s strategy.

To do that, it will need to make bigger loans – currently it is hamstrung by regulations that do not allow the bank to give loans larger than 25% of its capital base to a single borrower, which limits its appeal for blue-chip clients.

Mwigwe has reached out to institutions like Kenyatta University in a bid to target promising recruits and push UBA’s retail offer into the youth segment.

Tapping into the savvy youth market will be key. “Over 70% of our population [in Nigeria] are under 30,” says United Capital’s Sanni. In Kenya, the demographics are similar, as is the cultural affinity for technology. In rural areas

UBA is trying to keep pace with the technology upstarts eating into banking margins and cities, from children to the elderly, the population is getting comfortable with mobile banking.

UBA is trying to keep pace with the technology upstarts who are eating into banking margins (see page 38) by investing in digital banking solutions. For instance, UBA launched a product on Facebook called U-Social which allows customers to carry out banking transactions via their Facebook accounts.

With new chief executive Kennedy Uzoka having taken over in August, it is expected that fresh impetus will be added to these initiatives across the bank’s footprint. What is certain is that UBA has its work cut out as it seeks to maximise shareholder value while battling for supremacy in Africa’s banking landscape. ● THE AFRIC A REPORT

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FINTECH

CAIRO’S INNOVATORS PICK UP SPEED Egypt’s still highly informal economy has inspired tech innovators to come up with tailored solutions that are also exportable, and the startup accelerators and investors are responding

T

here is new hope for Egypt’s large financial solutions are out to disrupt exunbanked population thanks to isting and often stale financial systems recently formed financial techwith more agile solutions that facilitate purchases or offer innovative financial nology (fintech) accelerators and the management platforms. launch of services to bring people into Local fintech already has some sucthe banking sector. Among recent decess stories. First among them is Fawry, velopments, savings app Feloosy is an Egyptian electronic payment commatching savers with banking partners (see box). Also, in May, Cairo-based innovation hub Equity investment into fintech Flat6Labs launched a fintech companies rose from $4bn to more incubator called the 1864 than $12bn from 2013 to 2014 Accelerator in partnership with Barclays Bank Egypt, pany founded in 2009, which sold a whose year of establishment in Egypt majority stake to a consortium of ingave the name to the new project. The American University in Cairo and Comvestors for $100m in November 2015. mercial International Bank started their Fawry kiosks and point-of-sale (POS) own fintech accelerator in July. With devices allow consumers to pay their just 10% of the Egyptian population electricity bills and traffic violation having access to bank accounts, there fines. The company plans to operate is a lot of work to be done.

600,000 POS terminals by the end of A burgeoning and diverse field across the year and already processes more the globe, fintech has exploded over the than 1m transactions per day. past two years. According to a study by Other firms are gaining speed. This the World Economic Forum, equity inyear, London-based Dopay, which vestment into fintech companies rose launched its payroll services for the from $4bn in 2013 to more than $12bn in unbanked in Egypt in 2015, raised $2.4m to expand services there and to launch 2014. Startups that provide tech-enabled

in Ghana. MoneyFellows, an Egyptian startup incubated in London, marries technology with traditional money circles to help people save and borrow through their social networks. Like many other startups, MoneyFellows has to work with commercial banks because the Egyptian government has strict regulations about institutions that can look after customers’ deposits.

FELOOSY: GOAL-ORIENTED SAVING FOR THE NOW GENERATION FOR A GENERATION consumed by consumerism, saving money is not a goal unto itself. The desire for a new mobile device, a car or a much-needed holiday, however, can suddenly make saving more palatable.

An Egyptian startup has created a savings platform built with this concept at its core. “The younger people are, the more goal-oriented they are when it comes to savings,” says Karim Beltaji, a co-founder of Feloosy.

Though it has not yet launched in its full capacity, Feloosy is collecting market data by offering users sample savings plans on its platform and forging partnerships with financial institutions and other partners. Since its September soft-launch, the project has seen a user conversion rate of above 20%, according to Beltaji.

Beltaji, 25, and co-founder Aly Kouchouk, 26, have finance backgrounds and saw the potential in Egypt’s

extremely high rates of digital engagement. Arriving on the home page the eye immediately settles on the word ‘goal’. Feloosy users specify what they want to save for and their risk profile, and from there a plan is created and financial instruments chosen. “Banks would ask, do you want an investment fund, a loan, a simple withdrawal? That can be intimidating for people who do not have the knowledge about these THE AFRIC A REPORT

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things. We are taking a different approach by thinking about the goal itself before the instrument,” Beltaji explains.

Through its partnership with local financial institutions, Feloosy helps users invest in low-risk funds that are easily accessible, via automated monthly transfers to a partner bank.

The service is free to users – Feloosy earns commissions from the banks and retailers it works with. ● A.S.A.

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cubator with Barclays, is used to these sorts of challenges and was an early investor in the startup community.

Launched on 30 May, the 1864 Accelerator is working on a broad range of ideas related to financial services, including payments, digital banking solutions, banking relationships, machine learning, lending, trading, cybersecurity, data analytics, cryptocurrency, insurance, wealth management, asset management and capital markets.

VINCIANE JACQUET FOR TAR

COMBINING EXPERTISE The 1864 Accelerator training will have a 14-week cycle accompanied by seed funding of up to E£150,000 ($16,900) in exchange for 10-15% equity. It offers a mentorship programme that includes a wide network of experts and potential investors. The accelerator solicited applications in early August and is now choosing its first intake.

Willie Elamien, managing director of the 1864 Accelerator, says the partnership will use each outfit’s expertise: “Barclays have the fostering of internal and external innovation as a strategic pillar […]. They are bringing in the financial knowhow and we bring the accelerator knowhow.” He adds:“They [Barclays] have engaged us as a way of speeding PREPARING TO RECEIVE APPLICANTS up their innovation cycle. They’re not FOR THE 1864 ACCELERATOR built for innovation,” as is the case with IN FLAT6LABS’ CAIRO OFFICE many established institutions and corporations. Elamien has experience in running fintech accelerators in New similar to Uber and Careem will tell York, London and Cape Town. you that this is untrue. There are ways around that with very simple technoloFlat6Labs, meanwhile, has been opgical solutions. When the market grows, erating in Egypt since 2011 and has the numbers grow,” Sharara says. graduated more than 45 companies.

In Egypt, a fintech revolution is not In 2013, it shifted focus from opening expected overnight. The entrepreneurial new cycles in Cairo toward expansion ecosystem is still in the growth phase in the Middle East and North Africa and is missing some vital links, includregion, opening offices in Jeddah and ing access to finance. Compounding this Abu Dhabi, with Beirut and Tunis in challenge are the complex dynamics of the pipeline. Now, however, “we have the country’s financial sysshifted focus back to Cairo tem and the laws that govgiven the improvement in ern it, which could prove investment sentiment and cumbersome to scalabiloutlook,” Elamien says.

The coming training cycle ity and long-term growth. will be solely for the 1864 But Egyptian startups in Accelerator. He plans to particular are no strangers to confronting myriad run the fintech accelerator programme in parallel with legal, bureaucratic, social From 2011 to 2014 Flat6Labs’ regular accelerand economic challenges. the percentage of ator cycles in the future.

In fact, these obstacles are adults with a bank often the source of inspir- account rose 11% Although the 1864 iniation for many startups. to 62% worldwide, tiative has the backing Flat6Labs, which is run- thanks in part of Barclays, the fintech ning the 1864 fintech in- to mobile money startups do not have to

SOLUTIONS WILL BOOM “Egypt needs fintech, specifically after the success story of Fawry, since our financial markets are not properly regulated at the level of payments and e-commerce – all of it is more informal, so any solutions would boom,” Sharara says.

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62%

SOURCE: WORLD BANK

Abdelhameed Sharara, a co-founder of Egypt’s annual RiseUp summit, which is currently preparing for its fourth edition in December 2016, says fintech is “definitely an industry on the rise”. The country’s startup scene has been growing rapidly since the Egyptian revolution in 2011.

Sharara and his co-founders have built a multi-day summit that has become the most important regional event of the year for entrepreneurs, bringing investors, senior executives, experts, speakers and stakeholders from around the world to the heart of Cairo. “We are seeing more startups coming into this field and more investors interested in it,” he says, citing the 1864 Accelerator and others in the pipeline.

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VINCIANE JACQUET FOR TAR

ate access to finance for many more people by creating credit histories for customers. “With this data, you can have a credit ranking system so people can get functions like an overdraft or mortgage,” he cites as an example – services which, right now, only the banked can enjoy.

ABOVE: CANDIDATES BRAINSTORM AT THE 1864 ACCELERATOR BOOTCAMP AT FLAT6LABS. LEFT: A TEAM PRESENTS ITS IDEAS TO THE SELECTION COMMITTEE

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work with the bank. Elamien explains: “The area of focus for us is pretty much any startup or idea that would end up working in the fintech space, so it is not limited to Barclays applications or startups that may result in a Barclays acquisition. It is peer-to-peer lending, an accounting solution, a crowdfunding solution, something that benefits small enterprises, something that benefits the unbanked.”

VENTURE LAB The American University in Cairo (AUC) and Commercial International Bank have similar goals. They are offering a 12-week training programme through the newly created AUC Venture Lab FinTech Accelerator. This is a partnership between the bank and

MOBILE MONEY HURDLES Mobile money has been slower to take off in Egypt than in many sub-Saharan African countries. Credit card company MasterCard, the National Bank of Egypt and mobile operator Etisalat launched the Flous mobile-money platform in 2013. It had 200,000 customers by early 2015. Vodaphone Egypt launched a similar service in 2013 and reported one million customers in mid-2015.

Egypt has a population of more than 90 million people. The mobile-money market is split up among many mobile operators and their banking partners, and the government has not required systems to be interoperable. Interoperability was due to be implemented by the middle of this year, and analysts say that such a change should lead to more growth and competition for the sector.

Another layer is growing the very network that supports and fosters this kind of innovation. While the foundation already exists and supports Egypt’s ecosystem, this community has mainly focused on tech-heavy, consumer-end applications.

The number of startups continue to grow by the day, despite the challenges of the Egyptian business environment. Savings app Feloosy’s founder Karim Beltaji explains that the regulatory structures are often unclear in the financial sector: “Regulations are a challenge, and the central bank in general is quite a volatile institution. The kind of decisions they make are quite

AUC’s business school, which already runs a business incubator at the AUC Venture Lab. The lab has mentored 55 startups since its founding in 2013 and provides training and access to facilities and seed capital.

One fintech firm that has Data collection should facilitate already been through the access to finance for more people AUC Venture Lab process is by creating credit histories startup PayMe, which works on digitising payments. It ofsudden and rapid – changes happen fers an app that allows companies quickly and without context.” to accept payments made by cards Still, if the trends in Egypt’s entreprenthrough the use of quick response matrix barcodes on smartphones and eurship community of the past few years are anything to go by, unpredictable other devices. This eliminates the need for POS terminals. economic conditions and regulations will do little to stifle this new trend that In terms of areas of potential in the fintech space, Flat6Labs’s Elamien is confidently gaining momentum. ● Amira Salah-Ahmed in Cairo says data collection should facilitTHE AFRIC A REPORT

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BANKING

DEBATE

ARE AFRICA’S BANKS FAILING THE CONTINENT? Banks have a mandate to transform savings into investment. However, African agriculture, infrastructure and industry are struggling to attract the money they need and at the right interest rate, despite their keystone roles in national development

Karim Sadek Managing director, Qalaa Holdings Transportation Division

THAT’S A REGULATORY FAILURE, IN MY VIEW

Mahin Dissanayake

F

Director of EMEA financial institutions, Fitch Ratings

BANKS ARE GENERALLY RISK AVERSE

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ALL RIGHTS RESERVED

MICHAEL MOLLOY PHOTOGRAPHY LTD

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t really speaks to how developed or underdeveloped certain industry segments are. So banks are generally risk averse. They are cautious. They take savings and they lend. But if sectors are weak, then banks don’t lend to those sectors.

So they are looking at lending to prime customers, better quality consumers, prime retail. And they lend to the government most of all because it is a better risk than all the other sectors. And if the government is paying higher yields, then the automatic preference is to lend to the government, where typically there are shorter maturities and better risk premia. So you don’t get banks lending to certain important sectors of the economy. And banks are more cautious about emerging sectors in the economy. In some countries, banks have a capacity issue. Some deals are too large for a single bank to take on. That is where the development banks step in, lending to important sectors like agriculture, small enterprises and microfinance.

The Nigerian government funds – for example – the Bank of Industry, does some direct lending and some on-lending programmes. ●

inancial intermediation in this continent is failing. I’ll take Kenya, which I am familiar with. We raised $165m to finance the senior loan component of our rail rehabilitation project.

It is a 15-year loan from development finance institutions at a cost of 5.5-6%. But if I had tried to get this money from Kenya, I would have got it for 15 years in local currency. It would have cost me anywhere from 14-16%. Infrastructure doesn’t survive with these rates, and not even industry. These rates are rates that you can use to finance trading, with import-export quick asset conversion cycles.

Now, I would understand it if the costs of the banks were high. But you look at interest spreads: in a country like Kenya – it’s 11%. So that same bank, if I’m a rich Kenyan and I am putting my money as a deposit in that bank in local currency, with all its fluctuation, they’ll give me just 4%. So you are lending me at 15% while your cost of deposits is 4%.

And they have a much lower non-interest-earning deposit requirement at the central bank. In Egypt, it’s 14.7%; in Kenya, it’s 5%. Yet the interest spread in Egypt is 3%, and the interest spread in Kenya is 11%. What does this tell you? That’s a regulatory failure, in my view. At the end of the day, the banks do what they do. But in my view, a serious effort needs to be made on the regulatory frameworks to make them more competitive. ● Interviews by Nicholas Norbrook

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ZIMBABWE

THE CASH CRUNCH The plan to introduce a “surrogate currency” in the form of bond notes has provoked outrage and social unrest at a time when Zimbabwe seeks to reassure international lenders of its credibility

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wave of street protests in July and August together with growing scepticism by Western officials are threatening Zimbabwe’s re-entry into the international financial system after two decades of sanctions and worsening debts. Demonstrators have been railing against the shortage of US dollars and a plan to reintroduce a local currency in the form of government-backed bond notes.

After it suspended the sinking Zimbabwe dollar in 2009, the government has been operating a multi-currency regime, with most businesses using US dollars and South African rand.

The International Monetary Fund (IMF) and the World Bank have postponed a meeting to finalise Zimbabwe’s repayment of its $1.8bn arrears until later in the year. Finance minister Patrick Chinamasa, in charge of the strategy for Zimbabwe to repair relations with inter-

national financial institutions, insists the any future negotiations would be based debt clearance plan is a “done deal” but on a wider assessment of standards of adds that fresh credits are critical to his governance and accountability.

Economic and political pressures have plans for economic revival. been building since John Mangudya, Cairo-based Afreximbank is backing governor of the Reserve Bank, anZimbabwe’s plan to pay off its arrears and has hired Lazard Bank as an adviser to nounced in May that the government raise a $986m loan. “If we clear the arwould ease the shortage of US dollars, rears without a corresponding commitment of new money, Pressure has been building since we will be in a worse position,” the Reserve Bank announced warns Chinamasa. in May it would issue bond notes But those new funds could be held up by unrest and lack used for more than 90% of transactions of consultation, according to some IMF in Zimbabwe, by issuing bond notes. shareholders. “There is no plan B for Zimbabwe’seconomic recovery,” a senior These would be interchangeable with Western diplomat in Harare says, “but US dollars but would not be legal tender outside the country. President Robert there will be tough conditions along with new loans.” IMF spokesman Gerry Rice Mugabecalledthebondsa“surrogatecursaid in July that there was no financing rency” that would stop criminals coming to Zimbabwe to “fish for dollars”. ● ● ● programme under discussion and that

OPINION

Fa arai Sevenzo Film mmaker and broadcaster This is mainly due to the power she wields over her husband’s decisions and appointments.

It was G40 that organised the sacking of vice-president Joice Mujuru in 2014, driving her and her supporters into the wilderness of opposition. Now G40 wants to repeat the trick with current vice-president Emmerson Mnangagwa, one of the toughest and wiliest politicians in the land. Since the beginning of the year, G40 has been accusing Mnangagwa of plotting to overthrow the president.

It is just possible that Grace and her allies may succeed in pushing out Mnangagwa and that will

THE GREAT DIVIDE

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ith the chronically divided Zimbabwe African National Union-Patriotic Front (ZANU-PF) due to hold its congress in December, don’t believe anyone who tells you they know what’s going to happen in Zimbabwe’s politics. A winter of protest and rebellion has left President Robert Mugabe and the ruling party weaker than ever in its 53-year history.

ZANU-PFhassplitintotwomain factions jockeying for power after

Mugabe. As the economy nosedives, civil society protest movements are on the streets again.

The official opposition, itself badly splintered, looks rather irrelevant.

On the inside lane of the race to power after Mugabe is Generation 40 (G40), a group which is largely loyal to his wife, Grace. G40 is young in the political game and lacks support from veterans of the liberation struggle. Yet those ostentatiouslybackingGracehaveseena rapid rise in their political fortunes.

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get her what she wants. That is, proximity to a new leadership that will safeguard her husband’s legacy and protect her children and money when Mugabe departs. But it is more likely that G40’s plan will backfire, leaving Grace to choose a luxurious ‘retirement’ in Singapore or an uncomfortable future facing some powerful foes in Zimbabwe.

There are reports of a political cull in the army and the police.

This will cut Mnangagwa’s support ahead of the congress in December. Meanwhile, he could be replaced as justice minister by a G40 appointee. That would leave him vice-president in name only and lacking a power base to take over State House.

But G40 is not taking account of the scale of disaffection. The conditions for an economic meltdownareinplace,withrisingnumbers of unemployed and growing protest movements. Dealing with this crisis could be even tougher than fighting off rivals in the party.

Angry school leavers and graduates are struggling in a moribund economy.Thegovernmentisdelaying salaries for civil servants, police and soldiers while the ruling clique is expelling war veterans from the party of national liberation.

G40 is seriously targeting Mnangagwa, a longtime securocrat with close ties to the war veterans, the army and Mugabe himself. It was Mnangagwa who pulled ZANU-PF back from the brink when Mugabe faced defeat after the first round of the 2008 elections. Now G40 apparatchiks are moving against Mnangagwa’s power base in the Midlands, firing his supporters from top party and government positions, and replacing them with Grace loyalists.

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Time is not on Mugabe’sside.He may be forced to choose between the G40 and an alliance of ZANUPF stalwarts, led by Mnangagwa and backed by war veterans and senior military officers. If the crisis worsens, the stalwarts could force Mugabe out before the 2018 poll.

Meanwhile, opposition parties will try to look united, riding on the coattails of popular protest movements. There is talk of creating a new national authority to manage a transition, drawing on talent from across society. For now, the battle for power within ZANU-PF is the main event, and no one there seems bothered about inclusivity.

Much will depend on money.

If finance minister Patrick Chinamasa’s efforts to bring in new investment and loans bear fruit, the government could get a respite. But everyone knows it is on a very short leash. ●

TSVANGIRAYI MUKWAZHI/AP/SIPA

RIOT POLICE BREAK UP A PEACEFUL PROTEST ON 17 AUGUST AGAINST THE INTRODUCTION OF THE BOND NOTES

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Many fear the government is reintroducing the Zimbabwean dollar by the back door. The currency was abandoned in 2009, when inflation had reached 500bn%. Far from boosting confidence, the bond note announcement prompted companies earning US dollars from exports to keep their profits out of the country.

At the same time, activist groups such as Tajamuka (meaning defiance in Shona) and the #ThisFlag movement organised weekly protests in July and August against economic hardship in general and the bond note plan in particular. Other groups of students and workers joined in to protest against police harassment. Hundreds have been arrested after running battles with the fearsome anti-riot police. ●●●

ACROSS SOCIETY “We have seen some of the biggest demonstrations for more than a decade,” says Alex Magaisa, a former adviser to Morgan Tsvangirai of the Movement for Democratic Change (MDC) party.

“What is different this time is that it’s right across the society – churches, taxi drivers, trades unionists, civil servants – they are all demanding an end to the economic suffering.”

Tsvangirai’sMDCandotheropposition groups are cooperating more effectively, says Magaisa, and ratcheting up the pressure on government. At a demonstration inGweruinmid-August,Tsvangiraijoined arms with Joice Mujuru, the leader of

Zimbabwe People First, who was vicethere is “respect for ownership and title of property, freedom of speech, an end president until she was expelled from the rulingpartylastyear.“Oppositionactivists to lawlessness, violence and intimiddon’t want the IMF and the World Bank ation, sponsored or condoned by the to throw the government a lifeline,” says governmentofZimbabwe.” Morerecently Magaisa, “without guarantees of political Europe’s ardour has been flagging, partly and constitutional reforms.” due to worries about the sharp deterioration in the country’s finances.

Fresh divisions in the rulingZimbabwe African National Union-Patriotic Front and the complexity of the political landMARSHALL PLAN scape (see opinion) could slow down any “First we have to deal with the huge new funds from the IMF and the World imbalances in the economy,” former Bank. Some Mugabe supporters insist finance minister Tendai Biti tells The there are alternatives. Instead of negoAfrica Report, “then we need serious economic reforms and a Marshall-style tiating with Western states, Zimbabwe fund to relaunch the economy.” Biti couldgetunconditionalloansfromChina, according to local government minister Saviour Kasukuwere The government may have after a recent trip to Beijing. more financial choices than many Although Zimbabwe had outsiders understand reached agreement in principle with its creditors at the says the government has not consulted African Development Bank annual civic groups and trade unions on its meeting in Lusaka in May, the governstrategy, so there are widespread susment could still face a political veto. picions about its intentions. “There is “We will never tire of trying to engage a need to restore the social contract in with you,” Chinamasa told the US delZimbabwe […] To do this, we need a naegation in Lusaka, “but please do not tional transitional authority that would try to torpedo the process […]. We’ll all be acceptable to all parties.” be worse off if it fails.”

Exotix Partners, a London-based finWashington’s Zimbabwe Democracy & Economic Recovery Act of 2001 reance house, agreed with Biti’s concerns quires US directors of the IMF and the about the urgency for economic reforms, World Bank to oppose new credits until but its research team concluded that the government has more financial choices than many outsiders understand. The HARARE FRUIT AND VEG TRADERS problem, says Exotix, is that most of those GIVE GENEROUS MARKS OUT OF choices deepen the structural economic 100 FOR MR MUGABE’S GOVERNMENT problems. Exotix concluded that Zimbabwe is not a fully dollarised economy because there are two types of US dollar in the system: hard cash in the form of dollar notes exchangeable anywhere, and dollar earnings which come under the control of the central bank’s real-time gross settlement (RTGS) system.

The latter accounts for more than 90% of the US dollars in Zimbabwe’s economy. Hard cash in the form of dollar bills makes up about 6% of deposits in thefinancialsystem–some$269m.When the multi-currency system was introduced in 2009, US dollar cash made up 49% of deposits. That is why US dollars in cash have a 10% premium over US dollar transfers in the banking system.

One quick win for the government, says Exotix, would be to promote the use of South Africa’s rand heavily. Even with such a change, Exotix forecasts a troubled five years ahead for retail banks in the country. ● Patrick Smith TSVANGIRAYI MUKWAZHI/AP/SIPA

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RWANDAN HIGH-FLYERS DOREEN INGABIRE, TETA ISIBO, SONIA MUGABO AND BONITA MUTONI

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FINANCIAL INCLUSION

A GAP IN THE MARKET

The AfDB and other institutions are extending more loans to women and bringing more female traders into the formal financial sector, which should have spillover effects on agriculture and other areas

By Nicholas Norbrook in Lusaka

MICHAEL ZUMSTEIN/AGENCE VU

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hat women want: a level playing field. In France, there is a 44% gap between the salaries of working-class men and working-class women. According to US Census Bureau research in 2010, women earned just $0.77 for every male dollar. The women in the Swiss canton of Appenzell Innerrhoden only got the right to vote in 1991 – the same year the modern internet came into existence.

African economies get women into the workforce: around 63% according to the International Labour Organisation, compared to 50.3% on average globally. But while women-run businesses are recognised for pulling more people out of poverty than their male counterparts, they suffer from a signi-

ficant funding gap on the continent.

Consultancy McKinsey & Company and the International Finance Corporation put the financing deficit for Africa’s 3-4m women-owned businesses at between $21bn and $25bn. That does not even include what is needed for the estimated 12m businesses in the informal sector.

Nowhere is the lack of credit for female-run businesses more acute than in agriculture. African women receive less than 10% of all credit going to small farmers and only 1% of the credit going to the agricultural sector, according to the African Development Bank (AfDB). It can cost $10,000 per hectare to turn bush into farmland and an extra $3,000 to put it under irrigation. That is beyond the reach of most, if not all, smallholders in Africa. ● ● ●

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FINANCIAL INCLUSION: A LONG WAY TO GO

Only 16-20% of women in sub-Saharan Africa have access to longterm finance from formal financial institutions

Employment status by gender (ratio of females to males) 2.0 1.5 1.0 0.5 0 wage and salaried own account

employers contributing family members

$26bn

Estimated size of the funding shortfall that Africa’s women-owned firms are facing SOURCE: IFC

Credit needs for women-owned SMEs (%) Very small

unserved underserved well-served do not need credit

18-22 6- 127 14

55-67 Small

17-21 78

49-59

1822

Medium

24-30

33-40

1518

1822 SOURCE: IFC

NYANI QUARMYNE/PANOS-REA

SOURCE: AfDB

SOURCE: IFC, 2007 DATA

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To address the lack of finance for women, the AfDB launched the Affirmative Finance Action for Women in Africa (AFAWA) plan in May, putting an initial $150m into the programme over the next two years as a catalyst to bring other investors on board. So far, they include PTA Bank and the Arab Bank for Economic Development in Africa (BADEA). ●●●

EVE GODSON STARTED HER SCHOOL IN ACCRA WITH A MICROFINANCE LOAN; SHE NOW EMPLOYS 34 TEACHERS

got out of that bank. But by the end of the day, I got somebody to give me $2,000, and I have never looked back.”

Riria cautions the AfDB on the dangers of treating AFAWA as a topdown venture. “In Kenya, the politicians make cute statements, but the women still don’t get the money […].

It will go through so many systems that by the time it gets to the women, it’s no longer there. So, we are left scratching,” she explains.

For Manal Abdel Moneim, chief executive of Cairo’s SOBEK Trade and

TEARS AND DETERMINATION Banks in Africa have a long way to go towards equality in lending. In Kenya, despite women owning 48% of informal businesses, they access only 7% of credit, says Jennifer Riria, who runs a microfinance institution that targets women called Kenya Women Holding.

In Kenya, women own 48% She explains how she got of informal businesses, but they her start in the business: “In access only 7% of credit 1991, I walked into a bank – one of the biggest banks in Development, there is already money Kenya, and we are very well banked. I said to the bank manager: ‘Please give there but the barriers are more social me $5,000 to on-lend at a level of $50 than financial: “It’s just the women to the women to go to the market, buy don’t know how to access it,” she says. vegetables and come and sell them and “A lot of women in the rural areas don’t feed their families’. The bank manager read and write.” One option is to help looked at me and said: ‘Jennifer, do rural women form associations or you really want to tell me you want a cooperative, where they can then your women with their baskets on their both start pooling resources and also back to crowd my counters?’ I never get into more value-added activities – answered him and I cried. It’s funny making olive oil, for instance, instead of just growing olives. today to me, but that day I cried and THE AFRIC A REPORT

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Geraldine Fraser-Moleketi, the AfDB’s special envoy for gender, agrees: “We need to increase the number of women entrepreneurs in large-scale agribusinesses by providing training and access to financing and by improving market links […].

In cocoa, cassava and coffee, we have identified opportunities to create large women-owned agribusinesses in higher value-added activities.”

they go and bank with those financial institutions, they said: ‘They’re not for us. They’re for people with money’,” Gincherman recalls.

To get around this sense of cultural distance from formal banking structures, WWB and Diamond Bank leaned on the ‘susu’ collection practice that has been prevalent in areas of West Africa for many decades to create the BETA system: “It uses a sales force of BETA Friends that go around the market and open bank accounts [for traders] using mobile-banking technology. [They] can open a bank account in about two minutes,” explains Gincherman, “and then they also serve as collectors.”

Larger international banks are also pushing into this space. Barclays Africa – which already has impressive female

NEW BANKING PRODUCTS At present, according to the AfDB, eight out of every 10 women-owned businesses is some kind of shop or trading activity. Just one out of 10 is involved in a manufacturing or processing business – where the real money is. This matters if you want to see women at the heads of multi-million-dollar companies, or transforming a Mobile phones could help trading company into a manprovide a financing model where ufacturing company. women can borrow unsecured But banks are putting new products onto the market that better fit the realities and needs of worepresentation on its boards, including Wendy Lucas-Bull and Maria Ramos men on the ground. Anna Gincherman – is developing the Absa Enterprise of Women’s World Banking (WWB) exDevelopment centres in South Africa, plains how a partnership with Nigeria’s Diamond Bank – called BETA – brings aimed at helping SMEs access finance.

These will need to find new, more market traders into the formal bankflexible ways of lending, for example ing system. WWB and Diamond Bank officials noticed that in the middle of not demanding onerous collateral large markets, there are often one or two against any loan. “For me, one of the bank branches. But those banks only most painful things I’ve experienced service 10-15% of traders in the market. as a CEO is when I’ve had to foreclose and say to a woman you were not able “And when we asked women why don’t

to pay back your loan so you lose the house,” says Mizinga Melu, head of Barclays Africa Management. “So what we’re pushing is to find models where women can borrow unsecured, because we know they pay back.”

One broad trend in African finance – the increasing use of mobile phones – will help in this task of finding new models to lend to women. “If we think about legal identity, we see the programme that India has rolled out to give identities to millions, tens of millions of people across the subcontinent,” says Marisa Lago, assistant secretary for international markets and development at the United States Treasury. “Similarly with respect to access to collateral, one can hope that women’s use of mobile technology might be able to be tracked. And so, there could be a record of repayment even if women – because of legal barriers – don’t have formal titles to their cows or other forms of collateral.”

Diamond’s BETA is pioneering in this respect. “We’ve also done a lot of financial education with these women in showing them how to use this account. Four years in, we’ve added a credit feature that understands the savings behaviour of these clients,” explains Gincherman. “By doing data analytics, we are able to extend a loan to them, a pre-approved loan based on that behaviour.” Hopefully that is the sound of the playing field slowly righting itself. ●

“THE GOVERNMENT SHOULD STOP TALKING AND ASSIST US” OLIVIA ADONIS CUTS HAIR with military precision while she explains her uphill battle to access financing for her business in Cape Town.

Adonis has been in the sector for the past 26 years, and in 2010 she decided to work for herself. Knocking on financial institutions’ doors proved fruitless. But she refused to give up and received support from her father.

Adonis explains the difficulties she faced: “I tried to apply for a loan from a bank, but they wanted two years of bank statements and all sorts of other documents to show I was creditworthy.

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It was such a hassle and the hoops they make you jump was too stressful. I just gave up.” In 2011 she tried to access money from a government-run initiative but the application process suddenly changed and red tape ate into her work, so she gave up again. “Accessing financing for small business is tough and access to government support is even more difficult,” she tells The Africa Report.

In 2012, she decided to get bigger premises and expand her business. Again she was not successful in accessing funding and received help

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from family to do it. A year later she finally managed to get a loan from her bank, Standard Bank, but is paying a high rate of interest to service the debt. “I don’t have any additional access to credit because they want payment in 30 days. I am a smallbusiness owner, so I opted for a loan, which I can pay back over a few years.

Although the interest is high, what choice do I have?”

Adonis says that she would love government to stop talking and actually assist small businesses like hers. The National Development Plan argues

that small businesses will be responsible for 90% of job creation up to 2030 and the government says it plans to spend R3.4bn ($250.3m) on small-business financing over the next three years.

Adonis is a single mum and when she needs extra credit, she says, “I shuffle things around and cut back on essentials to make ends meet”. She concludes: “I would love to expand, get a marketing plan in place, design a website, buy more stock for the salon but I am unable to do this.” ● Crystal Orderson in Cape Town

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INSURANCE

DISRUPTORS AND THE DISRUPTED As Western firms wade into the burgeoning Africa market, Swiss Re shakes up the value chain and fintech creates choppy waters for middlemen, African firms are forced to sink or swim

T

hese are bullish times for the insurance industry in Africa, which has potential everywhere.

“Insurance premiums have been growing 3.7% a year over 2010-2015,” explains Claver Gatete, Rwanda’s finance minister. “Actually over 7%, if you exclude South Africa.”

That is partly because Africa is coming from such a low base. A 2013 survey by microfinance company BIMA found that across 13 markets in Asia and Africa 77% of customers had never been insured before – and in Africa alone that number rises much higher.

The opportunities are clearly there, thanks to a growing and youthful population armed with mobile phones and increasing consumer power. The winners will be companies that know how to reach beyond the rich elites into the wider African populations and those able to keep pace with technology.

So much so that Western giants are turning up for the Africa party in the wake of stagnant home markets. Swiss Re, a global reinsurance company, bought a 25% stake in Leadway, a Nigerian insurance company, in July. In October 2014, the Swiss firm bought a minority stake in Kenyan insurance firm Apollo Investments. In December 2013, Prudential bought Ghana’s Express Life.

ROCKING THE BOAT On the sidelines of the 50th anniversary celebrations in May of Africa’s own reinsurance giant, Africa Re, chief executive Corneille Karekezi explained how his outfit could follow Swiss Re’s example of taking stakes in insurance companies: “They are disrupting the entire value chain,” says Karekezi, sketching out the many-linked chain between the people or companies insured at the

bottom, through insurance brokers and agents, up to the insurance companies, then through intermediary insurance brokers, up to reinsurance companies – firms that insure the insurance companies –, and finally retrocession, a form of risk sharing among reinsurance companies. “Previously, like us, they were only in reinsurance. Now they have said: ‘We have sufficient funds, we will play here in the intermediary levels and in the insurance company levels’,” says Karekezi.

So what has caused Swiss Re to rock the boat of the most staid of industries?

Disruptive technologies. “Today, more than ever, some of these intermediaries run the risk of getting disintermediated sooner rather than later because they are unable to adapt their business model,” said Swiss Re chairman Walter Kielholz in a March letter to investors. “Disruptors are penetrating their markets or technology is changing the entire industry.”

ILLUSTRATION BY SEVERIN MILLET FOR TAR

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Themba Baloyi, executive director of South Africa’s Discovery Insure, also advises peers to open their eyes: “As insurance companies, we risk being overtaken by fintech [financial technologies].”

And who are those disruptors?

South African investor Vusi Thembekwayo joked as he unsettled delegates gathered in Kigali to talk about the latest insurance industry developments: “I’m sure you guys have never heard of Max Levchin. But you should have. He is going to eat your lunch.”

INTERVIEW

Corneille Karekezi Chief executive, Africa Reinsurance Corporation

CURRENCY HEADACHES THE RWANDAN BOSS OF AFRICA RE, Corneille Karekezi, earned himself another five-year contract to run Africa’s leading reinsurance company in July.

Africa Re has been growing, with shareholder funds rising from $344m in 2010 to $736m in 2014.

It retained its A-rating from Standard & Poor’s in 2015, while in June 2016, A.M. Best ratings agency upgraded Africa Re to an A, citing its “excellent risk-adjusted capitalisation, consistently strong operating performance and robust market position in the increasingly competitive African reinsurance sector”.

That has not stopped 2016 from being a tough

year, especially with African currencies taking a beating from a strengthening US dollar. Karekezi explains: “It’s a tough one, but the problem has been there all our life, and it may continue to be there all our life as Africa has different currencies faring differently for internal reasons or external reasons and even continental reasons and global reasons.”

He adds: “So, we are looking at strategies to convert local currency premium income which we get from different countries, like Rwanda and Morocco. What we are trying is converting immediately the premium income into US dollars, which is our accounting currency. But that doesn’t mean that

ALGORITHMS AGAIN Levchin, a co-founder of Paypal, launched a mobile lending platform called Affirm in 2012. It is now going into insurance, and will, for instance, track various social media channels to measure behaviour. Facebook, for example, tracks whether a post is uploaded in a moving vehicle. Facial recognition software can be used to detect bloodshot eyes on photographs, while clients’ use of email can be used to track response rates.

The result is a highly tailored product that will change your premiums on a monthly basis depending on how algorithms rate your risk.

Innovations do not have to be high tech, however. Sujay Shah, associate director at the EY consultancy in Kenya, studies the role of the broker in selling insurance in Africa. Like all middlemen, they take a cut and therefore raise the overall cost to policy holders.

Companies are looking for ways tion on health insurance, the cheapest around this, for example by selling plan being just $2 a year and covering insurance from your local supermarmaternal health and inoculations. ket. Insurance could be sold as part The solution found was similar to the of, say, a mobile phone plan, which conditional cash transfer programmes offers the chance to lower the cost to first seen in Brazil, where the governthe insurance companies, “and that ment made social grants contingent will lower premium costs for the conon child participation in school and sumers,” explained Shah.

At the corporate level, Jean Kacou Diagou, the chief execThe leapfrog benefits of new utive of insurance company technologies are there for the NSIA in Côte d’Ivoire, says taking – with a change of mindset the leapfrog benefits of new technologies are there for the vaccinations. Now, if you want to pick taking. But, he insisted, only if there is a change in mindset at the same time: up a marriage licence in Rwanda, for example, you need to have paid your “We need simple products, easy to understand and easy to market,” he says. health insurance.

Africa Re’s Karekezi adds: “It’s about This focus on the widest possible engineering habits, not just finance.” He extension of insurance – what some points to the difficulties the Rwandan call the ‘bottom of the pyramid’ – will government had in getting its populaalso be helped by technology, argues THE AFRIC A REPORT

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we’ll take those funds out of Africa because our African countries, they also need US dollars.

So we will convert into US dollars, then keep those amounts in US dollars in Africa.”

While one option for growth might be global diversification, Africa Re’s mission is developing the continent, Karekezi believes. “We could relocate to other territories like US manufacturers did – going to China where they can produce goods at a lower price – but that is not an option. 40% of my shareholders are African countries. The heads of state will say: ‘We gave you the capital to develop Africa.’ So we have to fight here.” ● N.N.

Hassan Boubrik, the head of the Moroccan pension and insurance regulator, and also chairman of Africa Re: “Digital will really allow companies to tailor products at low costs, which helps access people and needs that are not being met,” he said.

Farmers represent 66% of Africa’s population and are often at the pyramid’s bottom in terms of resources.

For Mohamed Beavogui, director general at African Risk Capacity in South Africa, the continent needs to get serious about dealing with the climate, including creating financing mechanisms that will release money to farmers immediately after a failed harvest, for instance. That would allow them to bounce back “rather than the crisis management we are doing now,” concluded Beavogui. ● Nicholas Norbrook in Kigali

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BUILDING BRIDGES The Africa Finance Corporation is working on the problems of size and standardisation of project finance to attract more capital to Africa’s infrastructure spending deficit

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liver Andrews is not a happy man. to lenders, where we can exchange in“Every year we do one big power formation. We can standardise. We can project on the whole of the conhave templates,” says Andrews, “so that tinent, and we give ourselves a round when I go to do the next power deal I can learn from what has already happened in of applause,” says the chief investment Ghana. I can look at the power purchase officer of the Nigeria-based Africa Finagreement. I can look at the ance Corporation (AFC), financing docs – they are which assembles a unique blend of state money and standardised.” His point is private sector bankers. thatdeliveringinfrastructure projects requires a special “It saddens me. Children skill set – certainly enginare still walking to school, women can’t give birth in eers, lawyers and bankers healthy conditions, infant willallbeneededatdifferent mortality is high. It hurts points – but you also need me to my core.” peopleandteams“whocan project finance see the whole and push a Analysts often talk about deals closed in Africa infrastructure dedeal through all of that”. sub-Saharan Africa ficit as a number, around long track record in renewable energy. It Even with more bankin the decade to 2013 has partnered with GreenWish Partners $100bn a year according able projects in place, to SOURCE: WORLD BANK to build 600MW of solar power plants move the dial on the deficit the African Development across the continent. “It’s an education of $100bn per year requires Bank. But to experience a change of mindset to bring money in process, explaining the emerging market it is something else. A trip beyond the story,” Thomassen says. from institutional investors such as penlimits of many African cities quickly sion funds. More often than not, riskIn the power sector that story comes leads to terrible roads and weak power hungry niche funds are the ones that put in several parts. Firstly, there is an ecoand sanitation systems that have not money into new infrastructure projects nomic rationale because you are providimproved for decades. ing low-cost electricity to a market that in Africa rather than the investors and has very expensive alternatives in diesel pension funds that control the bulk of SPARE PARTS or fuel oil, and where electricity sparks In a truck stop near Chiredzi in southern global and African money.

Zimbabwe, the blaring television comThose investors are coming around as fresh growth that creates new customers. perceptions of risk and returns change, Next, there is the health of the sector: a mentary betrays a bar around the back. says Jens Thomassen of Denham Caprecent Moody’s report shows default Inebriated road warriors are watching Manchester United throw away a 1-0 lead ital, a private-equity company with a levels in African power-project finance against Leicester. “The road after Beitbridge [the border crossing from South TIME TO STOP SHUNNING THE WATER SECTOR Africa toZimbabwe]isso,sobad,” adriver laments.“Wehavetocarrymanysparesto THE PRIVATE SECTOR sanitation. Rémi Fritsch, In Kenya, says Fritsch, makeitacrossandonthroughtoZambia.” is largely absent from deputy director of the telecoms sector It is not necessarily a lack of finance water and sanitation the Agence Française enjoys margins of 50%, that is holding things back. “You can have projects in Africa, de Développement electricity 30%, pots of money, but if you don’t have the and that is problematic in Kenya, says this is and water utilities bankable projects then you are not going to get the investment,” says Andrews. because the continent a red flag for financiers: by comparison barely needs to spend about “You have to understand turn a profit. Much His organisation launched the Africa $50bn per year to it from their perspective. of this comes down Project Developers Initiative in April meet its water security If it’s low margin or to tariff levels, which to bring together everything needed challenges. There loss-making, why would are low across the to help ideas for road, rail and power are several reasons you extend [the continent, often not projects turn into concrete proposals. for this state of affairs. service]? There is no even covering operating “Look, there should be more of us.

The first is that margins reason unless you want costs. This is at the heart Let’s create something where there will are low in water and to lose more money.” of the bankability issue. be advocacy, advocacy to governments,

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20MW project in Senegal is not worth the transaction cost. That does not mean African funds are not looking at those opportunities – especially with an eye to the longer term. The AFC is backing a small developer called Ivoire Hydro Energy, says Andrews. Ivoire Hydro is developing a 44MW hydroelectric plant in Côte d’Ivoire and has involved the Netherlands government’s development finance institution FMO in the deal. “We are hoping when it delivers that [the developer] can look again to say, ‘Well this time I’m going todevelop an off-grid solar project of 20-30MW’ because in 10 years time, maybe we will buy their portfolio.”

Another obstacle is that financial institutions are often not familiar with the water and sanitation sector. In Kenya and Benin, for instance, the World Bank helped water service providers access commercial loans by negotiating with banks and arranging partial loan guarantees.

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INSTITUTIONAL INVESTORS ARE STARTING TO WANT A STAKE IN NIGERIA’S EKO ATLANTIC CITY

insurance backed by the World Bank in what is effectively becoming a government-to-government deal. “You have a much better structural protection than what you would have in any other European or US power-project finance.

So if you are truly looking to get longterm yield, not looking to take a view on commodity prices or power prices, it’s probably a better product.”

Of course, if you are an asset manager who has to deploy $200bn effectively, a

Partnership is also developing a pooled bond facility in Kenya that will raise funds for utilities on local capital markets. Roy Torkelson, a consultant working on the bond facility, says the main lesson he has learnt over the years is that “technical assistance is necessary continuously and all the time.” ● Emilie Filou

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WATER TREATMENT PLANTS LACK SEX APPEAL

CHRISTOPHE MAJANI D’INGUIMBERT/VEOLIA

are remarkably healthy, running at about 3.1%, compared to 9.1% in United States (US) power projects.

The attraction of African power deals to risk-averse pension funds, for example, are clear, when compared to equivalent options for funds in the West. “When you are looking at our deal in northern Senegal, it’s good old fashioned project finance,” says Thomassen, citing the fixed-price construction agreement, long-term amortising debt with a fixed rate, a 20-year power-purchasing agreement with a clear mechanism on how investors can transfer earnings out of the local currency, with political risk

POOLING ASSETS The AFC’s goal of aggregating smaller power producers is an attempt to fix this problem of scale and makeAfrican power attractive enough for global funds. While remaining cloak-and-dagger about the details, Andrews says: “We are pooling our assets together with another fund and hope to create a utility in the style of, say, Eléctricité de France, but based on the continent and that can be able to do things from its own balance sheet and then refinance at a later date.”

The aim is to shorten the time it takes to bring projects to market but also give its shareholders and sponsors multiple exit options, through listings and strategic sales. “So we want to create a mid-tier level of developers, but also create that animal that will scale up and do more things,” says the AFC’s Andrews. “Precisely to attract global but also African pension funds. We are doing this in power, and we are also hoping to do this in transport.” Pension funds of the world, get ready to do some good. ●

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ABRAAJ HAS INVESTED IN HEALTHCARE, TAKING A MAJORITY STAKE IN A TUNISIAN PRIVATE HOSPITAL, CLINIQUE TAOUFIK

PRIVATE EQUITY

BLOOMIN’ ‘EQ!

African private equity had a record year for fundraising in 2015, powered by large pan-African funds raising more than $1bn each.

But where to place the money amidst economic volatility?

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hile some investors may be wary of the impact that falling commodity prices and weaker currencies might have on their African ventures, private-equity investors remain optimistic and fundraising levels are high. Yemi Lalude, a fund manager at United States-based TPG Growth, tells The Africa Report: “The longcycle nature of private equity is actually very beneficial for allocating capital in choppy times […]. If you had just a one or two year investment horizon, then if times are rough then there’s no way to recover. But if you hold an investment for five to seven years, there is the ability to adjust to a change in circumstances.” But while African privateequity fundraising remains high, the value of deals has been dropping.

Competition amongst private-equity funds is increasing, and the value of the continent’s private-equity funding skyrocketed from $1.9bn at the end of 2014 to $4.3bn at the end of 2015, according to data from investment advisory

African institutional investors,” he says. Tunisia-based AfricInvest and Nigeria-focused African Capital Alliance each manage funds of $1bn.

TPG Growth, which was founded in 2007 and controlled assets worth $7bn in 2015, is aiming for diversity in its approach. The firm agreed to invest $1bn with Sudanese-British telecoms magnate Mo Ibrahim’s Satya Capital in June 2015. “At this point, based on what we’ve seen on the continent, we think we can comfortably put $100m a year to work,” Lalude says. He adds that the company does not have any fixed requirements for market allocations.

firm RisCura. The African Private Equity and Venture Capital Association (AVCA) heralded last year as “a bumper year for fundraising”. It noted that funds performed 44 exits – selling a privately held company by listing on a stock market or through another form of sale – in 2015, more than any previous year. That OVER-SUBSCRIBED number has more than doubled since TPG Growth is most involved in 2009, when just 21 exits were recorded.

Morocco, Egypt, Kenya, South Africa The biggest change to the industry in and Nigeria, and it is keeping an eye recent years has been the emergence on Ghana and Côte d’Ivoire, according to Lalude. Investments of large pan-African funds with the ability to raise in retail, financial serfunds of up to and beyond vices, healthcare, industrial and business services $1bn from sources around the world, according to are most appealing to the company, he adds.

Rory Ord, group executGrowth in the market ive at RisCura. “[This] has opened up new sources is indicated by recordof funding for African breaking fundraising levels.

The biggest close last year private equity, as the aswas the $1.1bn Helios Inset class had previously Amount raised by PE vestors Fund III, which been funded largely by firms to invest development finance inwas oversubscribed. The in Africa in 2015 stitutions and a few South investor base for the fund SOURCE: EMPEA

$4.2bn

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MIDDLE-CLASS GROWTH Another significant close last year was the fundraising for the $990m Abraaj Africa Fund III, which states it will focus on “well-managed, mid-market leaders in sectors most likely to benefit from demand driven by the rapid expansion of a young, urban, middle class across sub-Saharan Africa” such as consumer goods and services, consumer finance, and resource and infrastructure services.

The fund mostly targets Nigeria, Ghana, Côte d’Ivoire, South Africa and Kenya.

In April 2015, Development Partners International closed its oversubscribed African Development Partners Fund II at $725m, with US investors making up 40% of its limited partner base, alongside others from Europe, the Middle East and Africa. The company said the fund will follow a diversified strategy across industries, including financial services, healthcare, education, construction, logistics, telecoms and consumer goods sectors.

While fundraising levels have been high, the same cannot be said for investments. Volatile economies in many African countries are causing headaches for investors and fund managers. Some countries are suffering exacerbated currency volatility, others from falling commodity prices and food price inflation, which together also see a tightening of government finances.

RisCura’s Ord explains: “Some of these factors are still playing out and are causing some hesitancy in deal-making through 2015 and into 2016.” According to the AVCA, the value of private-equity deals on the continent tumbled by 69% last year, reaching $2.5bn. It says this is due to a fall in the closure of big deals and that smaller sales had done well.

The economic downturn in countries like South Africa and Nigeria could lead to bargain-hunting by private-equity funds, as all of that money raised last year needs to find homes soon if the funds are going to produce rich returns a couple of years from now. ● Gabriella Mulligan and Mark Anderson THE AFRIC A REPORT

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comprises sovereign wealth funds, corporate and public pension funds, endowments and foundations, funds of funds, family offices and development finance institutions across the US, Europe, Asia and Africa. The fund made a recent investment through Helios III, acquiring a 60% share in Telkom Kenya in June.

SHOPPING FOR DEALS The long-term outlook for private equity across the continent is good, with attention increasingly focused on East Africa

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ith African private equity (PE) mentals and economic growth, imhitting its highest value to proved political stability and increasing infrastructure spending – and of date in 2015, the industry course the possibility of high returns is attracting excited predictions for and favourable entry prices.” growth. According to the consultancy McKinsey & Company, the African The value of East African privateprivate-equity market could grow to equity investment deals announced in 2015 more than doubled that re$50bn over the next decade. However, corded in 2014, rising from $678m investment will differ wildly between countries and sectors, and McKinsey to $1.44bn. Wanjihia says that the argues that ultimately demand for interest is not spread evenly across capital will likely outstrip supply. the region: “Kenya has attracted the Looking at the near term, the majority of private-equity transacAfrican Private Equity and Ventions in East Africa, both by numture Capital Association (AVCA) says privateUganda, Tanzania, Rwanda and equity investment is likely Ethiopia are all seeing increased to focus on fast-moving interest from PE investors consumer goods. While South Africa remains a focal spot for private-equity investber and value. Uganda, Tanzania, ment, West Africa regularly secures Rwanda and Ethiopia, however, are a substantial proportion of deals, all seeing increased interest from with 25% of them taking place in private-equity investors.” the region between 2010 and 2015.

Heleen Goussard, an associate at AVCA expects West Africa to remain investment advisory firm RisCura, says an attractive destination. that currency volatility and low commodity prices will lead to a short-term reluctance to invest. She concludes EASTERN PROMISE that those worries will just be a blip: East Africa is becoming a private“The long-term outlook for private equity hotspot. Nonnie Wanjihia, equity in Africa remains good, as the executive director of the East Africa structural changes which have led to Venture Capital Association, tells the renewed interest in Africa are still The Africa Report: “Interest in East progressing, allowing for good returns Africa is continuing to grow backed over the longer term.” ● G.M. by certain macroeconomic funda-

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TAX

PANAMA: THE FALLOUT There were many prominent African names in the April Panama Papers leaks. Will governments now crack down on opacity in business deals and thus boost treasury revenue?

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says. The governments of Kenya, South frican governments are taking Africa and Nigeria have said that they small steps toward closing tax will pass laws to increase transparency loopholes after a whistleblower at through the creation of a public registry Panamanian law firm Mossack Fonseca leaked more than 11.5m internal docuof beneficial ownership of companies. ments, exposing a network of offshore companies used to get around tax obligMAURITIUS MAKES A START ations. Dubbed the Panama Papers, the Elsewhere in global tax management, documents, published in April, revealed Mauritius started to close a loophole thatthe owners of these opaque companin its tax treaty with India in May (TAR ies include the nephew of South Africa’s 82-83, July-Aug 2016). The treaty had President Jacob Zuma, and Jaynet Kabila, allowed investors to avoid paying Intwin sister of the Democratic Republic of dian capital gain taxes by moving their Congo’s President Joseph Kabila. Mining investments through Mauritius. “This companiesoperatinginZimbabwe,Sierra is definitely a good move. It will curtail Leone and Guinea were shown to be usopportunities for treaty-shopping and ing offshore companies to pay workers, round-tripping,” Mosioma says. “Howavoid tax obligations and underprice ever, Mauritius will continue to play the same harmful role to other countries, mineral sales. However, just because a company is offshore, that does not mean particularly in Africa, where it has been that it is used for illegal activities. aggressively marketing itself as an inAlvin Mosioma, executive director vestment gateway to the continent.” of Tax Justice Network-Africa tells The The Group of 77 (G77), a 134-strong group of developing countries at the UN, Africa Report: “The corruption debate is pursuing a proposal for a tax body fohas always looked at the demand side cused on fighting corporate tax evasion of corruption […]. The Panama Papers and illicit financial flows. An intergov[...] show us the supply side of corrupernmental group of experts in global tax tion and how the current global system is flawed and rigged.”

Mossack Fonseca set up shell For every $1 African countries companies for businesses opreceive in development aid they erating in 52 African countries, lose $1.3 through illicit transfers according to 7,000 leaked documents relating to African busilaw would be set up to aid vulnerable nesses.Someoftheseoffshorecompanies help to manage at least $60bn in illicit countries. The idea is strongly opposed financial outflows from Africa every year,

by Western nations, who have already theUnitedNations(UN)EconomicComshot it down twice. mission for Africa says.

For every $1 that African countries African governments are starting to receive in development aid they lose pay more attention to the problem. Sierra $1.3 through illicit transfers, accordLeone was the first country to launch an ing to the Overseas Development Instiinvestigation into trade mispricing – a tute. Daniel Balint-Kurti, head of special investigations at London-based nonformof taxevasionthrough manipulating invoices – following the Panama Papers governmental organisation Global WitleaksreportinginApril.TheSouthAfrican ness, explains: “International donors are Revenue Service has said it is investigstill willing to turn a blind eye when deals ating 1‚700 people living in the country involving state companies are structured via anonymously owned companies. who were listed in the documents. But They don’t demand to know who the “it’s too early to cite any policy or regulatory steps that specific governments have owners of these vehicles are.” ● taken as a result of the leaks,” Mosioma Mark Anderson

GUINEA One of the most prominent names in the Panama Papers is Israeli businessman Beny Steinmetz. In 2008 he bought the rights to 50% of Guinea’s Simandou iron ore mine, the world’s largest untapped iron ore reserve, for $165m.

His company, BSG Resources, went on to sell half of its stake to Vale for $2.5bn in 2010, prompting accusations that he bribed the government of former president Lansana Conté to get such a good deal.

The Guinean government says it has uncovered solid evidence that Steinmetz paid off the former administration.

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EGYPT The British Virgin Islands (BVI) froze the accounts of Pan World Investments, a company owned by Alaa Mubarak, the son of Egypt’s former president Hosni Mubarak, according to the Panama Papers leaks. The BVI’s tax authorities slapped Mossack Fonseca with a $40,000 fine for not investigating Mubarak’s assets, saying he was a “high-risk client” who should have been subjected to a thorough background check.

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DEMOCRATIC REPUBLIC OF CONGO (DRC) KENYA Kenya’s second-most senior judge, Kalpana Rawal, was linked to 11 companies registered in the British Virgin Islands (BVI). Rawal denied any wrongdoing, saying her family uses the firms to manage its real estate business. Also named in the leaks was Aly Popat, son of the former chairman of Imperial Bank, which collapsed after KSh38bn of depositors’ money was stolen. He was shown to be a shareholder of BVI-registered ImCap International.

President Joseph Kabila also had family connections to people cited in the leaked documents. His twin sister, Jaynet Désirée Kabila Kyungu, is named as one of the owners of Keratsu Holding Limited, an offshore company that was incorporated just months before her brother assumed office. The DRC government’s many dealings with Israeli businessman Dan Gertler, who is active in the country’s mineral sector, were also highlighted.

Gertler’s name is mentioned more than 200 times in the Panama Papers.

The Panama Papers linked James Ibori, a former governor of Nigeria’s oil-rich Delta State who is now serving a 13-year prison sentence in a British jail, to four offshore companies. One company, Stanhope Investments, was shown to be used to purchase a $20m private jet while Ibori was in prison.

Other Nigerian politicians mentioned in the leaks include Bukola Saraki, the leader of Nigeria’s Senate, and his wife; David Mark, a former leader of the Senate; and Theophilus Danjuma, a former defence minister.

SOUTH AFRICA South Africa’s President Jacob Zuma was uneasy about the Panama Papers leaks.

His nephew, Khulubuse Zuma, is named in the documents as a representative of Caprikat, a company registered in the British Virgin Islands that is behind the controversial 2010 purchase of two oil fields in the Democratic Republic of Congo. Khulubuse’s spokesman Vuyo Mkhize, explained: “His simple position is that he signed the agreement on behalf of Caprikat, but the question of his status within that company is something that he is not at liberty to comment on.”

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Nigeria

NEWS OF CIVIL SERVICE DOWNSIZING CAME SHORTLY BEFORE MAY PROTESTS AGAINST THE FUEL HIKE IN ABUJA

STAND AND DELIVER After President Muhammadu Buhari halved the number of ministries and sacked several permanent secretaries, he told civil servants that he was determined to reform the bureaucracy and stamp out corruption

By Charles Idem in Abuja and Patrick Smith

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ulfilling the grand hopes for prosperity and security that greeted Muhammadu Buhari’s accession to the presidency last yearwill restas muchon hisabilityto galvanise the civil service as on hightable political deals with the bumptious national assembly and 36 state governors.

The grim landscape of crashing oil prices and approaching recession has made the government all the more dependent on effective public administrators to eke out scarce state resources.

From the start, Buhari warned his officials that he would insist that the ● ● ●

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300 km NIGER

CHAD

BENIN

Kano ABUJA

NIGERIA Lagos CAMEROON

Port Harcourt

NIGERIA IN NUMBERS POPULATION

182.2 million

GDP (current US$)

$481bn

GDP GROWTH (annual %)

2.7%

INFLATION, CONSUMER PRICES (annual %) 9% BANK CAPITAL TO ASSETS RATIO (%)

12%

FOREIGN DIRECT INVESTMENT (inflows) $3.06bn BANK NONPERFORMING LOANS TO TOTAL GROSS LOANS (%) MARKET CAPITALISATION

5.3% $60.07bn

TOTAL RESERVES (includes gold, current US$)

$30.6 billion

EASE OF DOING BUSINESS INDEX 169/189

SOURCES: WORLD BANK 2015, UNCTAD 2015, NIGERIAN STOCK EXCHANGE, EASE OF DOING BUSINESS 2016

Gulf of Guinea

FDI INFLOWS (US$bn) 10

8.91

8

7.13

6

4.98

4 2

5.61 4.69 3.06

1

1.27 1.31

0 1990 95 2000 05 10 11 12 13 14 15

SOURCE: UNCTAD

6.10

BANK NONPERFORMING LOANS (%) 35 30

20 15 10 5 0

2008 2009 2010 2011 2012 2013 2014 2015

SOURCE: WORLD BANK

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● ● ● government’s more than 500 ministries,departmentsandagencies–which employmorethan250,000Nigerians–are fully accountable in terms of implementing policy and managing its finances.

One of Buhari’s first decisions as president was to cut the number of ministries from 42 to 25; he also dismissed all but two of the permanent secretaries that he had inherited from the previous government. According to an insider in the presidency, Buhari’s imperatives for civil service reform could be summed up as “lean, mean and effective”.

But those reforms have to be implemented amidst stark economic conditions, complicating the government’s planned shift to capital and development spending. Federal and state officials have been petitioning Buhari this year over funding; within months of coming to power last year, Buhari had agreed to a bailout for cash-strapped state governments.

But now is the time to hang tough, according to Lamido Sanusi, the Emir of Kano and former central bank governor: “Nigeria must drop the habit of borrowing to pay salaries and service recurrent expenditures.” On a visit to Kaduna on 25 August, Sanusi argued the current economic tribulations were more about government failure than market conditions: “We are not being sincere when we say we are in a recession because of the oil prices. What happened to the other sectors?”

SYSTEMS APPROACH All of the talk about the impact of the oil price crash highlights the country’s crude dependence. One of the ministers involved in economic diversification plans is solid minerals minister Kayode Fayemi, a close associate of power, works and housing minister BabatundeFashola.“ThePresidentmade it clear that he wanted constructive debate about policy,” says Fayemi. “But that once it’s decided, it was the minister’s task to implement it and [he/she] would be held to account accordingly […]. It’s a systems approach to government.”

Buhari’s view is that good government, like good armies, depends on robust systems and rules. Officials say he also expects all policy proposals to be backed up with fully researched position papers before they are scrutinised by the presidential secretariat at Aso Rock in Abuja.

For example, Fayemi, a former governor of Ekiti State and a security ex-

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pert, has spent much of this year developing plans to boost gold and iron ore mining, and to reboot the country’s troubled steel industry. He is looking for $5bn in investments for the country’s mining industry, which he argues will diversify the economy away from oil dependence and speed up industrialisation at the same time.

In late August, Fayemi was due to present a mining plan to Buhari and proposals to set up an independent regulatory agency to oversee the licensing and monitoring of mining operations.

It will be a tough case to argue under present financial constraints, but the plan fits with the government’s commitment to switch the emphasis to capital and development spending and prune recurrent budgets.

Senior civil servants in Abuja look nervously skyward when asked about the prospects of state projects getting financed despite the target budget of N1.75trn ($5.6bn) for capital spending this year. That budget is to be financed

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runs the Follow the Money initiative, tracking government and aid spending, Lawal spends much of his time with civil servants in the ministries of education, health and environment as well as agencies under them.

Recently, Follow the Money submitted a freedom of information (FOI) request to Nigeria’s health ministry about a $500m grant received from the World Bank for primaryhealthcareinruralcommunities.

Two weeks after the seven-day deadline for FOI requests to be honoured, Lawal was informed by officials at the health ministry that the letter bearing the FOI request had just arrived via the department of planning and statistics to the health minster’s office for further action.

by a mixture of loans from the African Development Bank and the World Bank, while finance minister Kemi Adeosun is leading a team to float a $1bn eurobond on the international markets.

The civil service is key to the Buhari project, and the man running his civil service reform programme is Joe Abah.

Abah likes to quote a glowing assessment of Nigeria’s civil service in 1960 by departing Western Region premier Obafemi Awolowo. This prompts him to ask where it has all gone wrong over the past half century. Currently director-general of the Bureau of Public Service Reforms in the presidency, he takes the long view.

REFORMS AND PURGES Certainly, 33 years of military rule had played a big role in undermining the civil service.“Thearbitrarinessandcommand andcontrolnatureof militaryrule doesn’t lend itself well to a cautious, measured bureaucracy that seeks to ensure impersonality, predictability, accountability and due process,” writes Abah.

Some say the rot set in when military leader Murtala Mohammed sacked 10,000 civil servants in 1975 as part of a THE AFRIC A REPORT

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PILLAR TO POST “It’s really frustrating because each time we go there, we are directed from one office to the other,” says Lawal. “They will tell you: ‘Go to the 3rd floor, it’s in this department.’ And when we go there they say: ‘It’s not here, go to this other department.’” The officials seemed to enjoy the confusion, he adds, partly because it was strange to them that citizens should dare ask for such information. Some of the officials claimed to have no knowledge of the FOI Act and wider purge of the predecessor military even suggested that the ministry would be happy to meet Follow the Money in regime under Yakubu Gowon. Others say it was the Dotun Philips reforms under court if they chose to sue for its failure Ibrahim Babangida’s military regime, to respond within the deadline.

Standardsofpublicservicedonotseem which made ministers chief executives to have improved despite a succession and accounting officers of their own minof reform efforts. One such programme istries and tied the tenure of permanent secretaries to the government that apwas Servicom – the ‘Service Compact pointed them. Other top for all Nigerians’ – introcivil servants say that with duced in 2004 under Presthis Babangida irreversibly ident Olusegun Obasanjo.

Each ministry, department politicised the civil service.

Abah quotes from a and agency would have a federal government docServicom unit within it to ument of 2008 that reports monitor performance. that the public service had A decade after its intro“metamorphosed from a duction, Servicom units manageable, compact, foare barely functional. A cused, trained, skilled and civil servant who works highly motivated body in a ministerial agency in Nigeria's monthly into an over-bloated, lopAbuja confirms this and civil service wage bill sided, ill-equipped, poorly adds that the quality of serpaid, rudderless institution lacking in vice is inconsistent because the system initiative and beset by loss of morale, fails to enforce performance standards.

The official, who requested anonymarbitrariness and corruption.” ity, tells The Africa Report: “One of the At the other end of the telescope, the picture is worse still according to govrules here [in the ministry] is that a file ernance activist Hamzat Lawal. As chief shouldn’t spend more than two days executive of Connected Development, on your table, regardless. But nobody a non-governmental organisation that pays attention.” He observes that ● ● ●

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N165 bn

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the problem is not a lack of rules which is widely regarded as a cesspool of but the recruitment of incompetent corruption. She had barely been in office for a month following her appointment individuals due to endemic nepotism. in July when reports emerged that she Although President Buhari’s repuhad discovered N11bn of the agency’s tation raised hopes last year of a tough fundsstashedawayinanumberofbanks, attack on corruption and nepotism, in contravention of the government’s opposition critics have accused the govtreasury single account policy. ernment of cronyism. They point to the new head of the civil service, Winifred Oyo-Ita, who worked closely with Buhari ONGOING REFORM EFFORTS during his time as head of the Petroleum Unquestionably, the civil service reform efforts are still on. A national council on Trust Fund (PTF) in the 1990s. The head of the Federal Internal Revenue Service reformwasestablishedwiththePresident as the chairman, while Joe Abah’s Bur(FIRS), Babatunde Fowler, is the former chairman of the Lagos state internal eau of Public Service Reforms reports to the secretary to the governrevenue service and is bement of the federation. Abah, lieved to be a nominee of who has worked on adminBola Tinubu, an influential istrative reform in the office leader in the ruling All Progressives Congress (APC). of the British Prime Minister, concedes that Nigeria’s civil To the customs agency, service is a reflection of the Buhari appointed a retired worst aspects of the society. army colonel who had been his chief of staff, Hameed Abah says the bureau uses Ali. And more recently, technology to make government more accountable and he picked Hadiza Bala Buhari slashed efficient. It launched NiUsman, an activist leader of the Bring Back Our Girls geria’s first FOI portal, where the number of movement, who was chief federal ministries requests can be submitted of staff to Kaduna State govelectronically and responses almost in half ernor Nasir El-Rufai, as the are issued within two hours from the previous of the request being lodged. managing director of the level of 42 The bureau is also working country’s ports authority. to cut bureaucracy and While it is early days, the appointees have delivered some sucspeed up business processes. cess. Fowler’s FIRS has shown progress But the bureau’s main job has been at increasing the tax take. In June, 70% piloting a performance management of the N500bn revenue received by the system for the six ministries that were government came from tax and non-oil merged at the inauguration of Buhari’s sources. The customs service was instrucabinet. Abah used the opportunity mental to this, as it increased collections with the restructuring to pilot the sysby N12bn from the previous month. tem, which involves clarifying the roles of the ministries and linking these to At the ports agency, Bala Usman has job descriptions of officials within the been mandated to transform the agency, ●●●

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FORMER BRITISH PM DAVID CAMERON AND BUHARI ARE FANTASTICALLY CONCERNED ABOUT CORRUPTION

respective ministries to measure performance more accurately.

To tackle poor service culture in agencies, the bureau has developed an agency improvementsystemwiththreecomponents: a guide on how to run a government agency; aweb-basedself-assessmenttool for agencies to rate themselves against good practices; and rapid institutional assessments, a diagnostic tool used to measure key organs of agencies to obtain a current state report.

An assessment of the Niger Delta Development Commission (NDDC), an agency under the Niger Delta ministry, revealed a contractual exposure of almost N1trn for uncompleted projects.

The bureau subsequently recommended to the federal executive council that the agency be stopped from awarding contracts for two years.

Abah is optimistic that the government will root out corruption, particularly the widespread payroll fraud through which senior civil servants have found ways to collect pay cheques for thousands of fictitious workers. He tells The Africa Report: “We’ve computerised the payroll.

We’ve computerised the accounting system. We’ve computerised the whole financial management system. And it’s now easier to track money.”

Before, it was difficult to discover who was collecting the ‘ghost workers’’ salaries, but that has changed, he said: “With the bank verification numbers, you know who collected the money. Technology is key for us to fight this bureaucratic corruption beyond the grand corruption of the politically exposed people.” ●

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Africa Re Financial Ratings Upgraded to ‘A’ After 13 Years

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AFRICA RE RATING HISTORY From 2003 to 2014, A.M. Best rated Africa Re’s financial strength and issuer credit as ‘A-‘ (Excellent) and ‘a’ respectively, with stable outlook for both ratings. The Corporation showed resilience in the face of turbulent financial headwinds which caused severe shocks in the industry, including the global financial crises, political turmoil in MENA, war in Côte d’Ivoire, the Egyptian crises, and labour unrest in South Africa amongst others. Despite these external influences on the insurance industry, Africa Re ratings were sustained year-on-year.

In 2014, A.M. Best revised the outlook of Africa Re’s rating to positive to demonstrate the Corporation’s continuous improvement of technical results, its risk-adjusted capitalization, financial flexibility, excellent liquidity, market competitiveness, deep market knowledge, geographical diversification, very good management and strong governance.

Fast forward to 2016, A.M. Best upgraded Africa Re’s rating from ‘A-‘ to ‘A’ with stable outlook.

L-R; Mr. Woldemichael ZERU (Vice Chairman Africa Re), Mr. Hassan BOUBRIK (Board Chairman), Mr. Corneille KAREKEZI (Group Managing Director/ CEO) and Mr Séré Mady KABA (Group Corporate Secretary) at the 40th anniversary symposium & 38th AGM of the African Reinsurance Corporation.

SUCCESS STRATEGY Africa Re is committed to providing strong and reliable risk protection to its clients, hence focusing mainly on its stability, profitability and ongoing existence.

To achieve this, the Corporation extended its reach across geographical boundaries, thus creating a well-balanced and diversified portfolio. This strategy was supported by strong governance, deeper R&D, enhanced risk management & controls, stable investments, efficient internal controls, strategic partnership and knowledgeable and experienced personnel.

IMPACT OF UPGRADE ON AFRICA RE The financial strength and issuer credit ratings conferred on an organization reflect its current and foreseeable future ability to continue to meet its financial obligations to clients.

The rating upgrade is expected to increase focus on Africa Re as a choice partner in the provision of insurance services. (Re)insurance institutions seeking strong and reliable business partnership, technical knowledge and quality credit / counterparty portfolio will turn to Africa Re for support more than ever before.

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COUNTRY FOCUS

NIGERIA

ELECTRICITY

UPHILL STRUGGLE TO FIX POWER Efforts to tackle the “national shame” of Nigeria’s electricity industry have been dogged by militant campaigns and mounting debt. Will stricter measures and diversifying produce a viable system?

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city Trader (NBET). “My message was gotiations but already about six months of oil and gas production had been lost. clear,” he said. “Let’s use the capacity Notonlydidtheseattackscutoffpower, we have effectively, fix the transmission they added to the mounting financial lines, complete the existing projects and produce steady power.” woes of the privatised power companReeling off a list of long-delayed proies. Some of the more pessimistic voices in the industry say most companies are jects nearing completion, Fashola said: teetering on the brink of bankruptcy.

“Our target of adding another 5,000MW withinfouryearsisrealistic.” Theyinclude a raft of new solar projects and a few FASHOLA’S BIG BANG megaprojectssuchastheMambillahydro Nigeria’s privatised industry resembles a misshaped pyramid with a bunch of project in Taraba State in the north-east, wires trailing from it. At the bottom are which should generate 3,000MW alone. the generating companies, which are This latest golden age of power lasted until the beginning of the year. Then, the generally viable, many having recently politics kicked in with a militant camtaken over functioning power stations paign in the Niger Delta, the heart of the that may have needed some repairs country’s oil and gas industry.

A shadowy new group known Some in the industry say most as the Nigeria Delta Avengers privatised companies are teetering started targeting the key gas on the brink of bankruptcy and oil production platforms in the region. With 80% of power and rehabilitation. They sell power to coming from gas- and oil-fired turbines, SHORT-LIVED OPTIMISM the state-owned NBET. Some suggested that the saboteurs paid this rapidly triggered an electricity crisis. by the diesel and generator importers Power from the newly privatised elecThen the problems start: the distribution companies buy power from NBET, to shut down the system had lost their tricity companies slumped to lows of send it out to the consumers, bill them nerve in the face of Buhari’s threats to 2,500MW as they turned off the lights. and collect the money. It is the job of the confront corruption. The government Joining the collective frustration, state-owned Transmission Company of then announced its budget, which inPresident Buhari called the country’s Nigeria – that is where the trailing wires cluded a record allocation of more than electricity industry a “national shame” $5bn for power and roads. come in – to run the grid. in 2015. After some military bluster Fashola met with all the main players A year ago, when power production about quelling the latest Delta militancy, security officials and technocrats, in the electricity industry: the privately and distribution were going well, the owned generating and distribution comincluding deputy oil minister Emmanuel distribution companies were paying for panies and the two big state-owned enabout 70% of the electricity they bought Kachikwu, then tried talking to them and tities, the Transmission Company of from the NBET, so the federal governvarious intermediaries. By mid-August, there was a prospect of substantive neNigeria and the National Bulk Electriment started to look for ways to cut its losses. The first target was the electricity Time to power up tariff. The previous government under Nigeria, electrical power generation, ’000 GWh President Goodluck Jonathan, in a fit of electioneering zeal, had cut it by an aver3.5 age of about 30%, putting into question the viability of the distribution, even if 3.0 they had managed to collect their dues.

In February, Fashola pushed the tariff 2.5 back up, his so-called big bang for the industry. “We know people will pay 2.0 for power if it is reliable and steady,” he said, adding that the power from 1.5 private generators was still far costlier than power from the grid. Consumer 2013 2014 2015 2016 groups disagreed and are now locked

onfidence in the grand plans to fix Nigeria’s electricity industry fluctuates almost as much as the power it generates. Even when the power turbines are working at 100%, they generate less than a third of national demand for power. As hope and watts flicker, most Nigerians still rely on expensive dieselfired generators – from contraptions that look like motorbike engines mounted on sleighs to generating sets the size of mini power stations – for their electricity.

The latest power peak came in the wakeofMuhammaduBuhari’selectionas president last year and his appointment of former governor of Lagos Babatunde Fashola as minister for power, works and housing. Even before Fashola announced his policies, power generation went up exponentially to a peak of over 5,000MW and the lights stayed on for weeks without interruption.

SOURCE: ASSOCIATION OF NIGERIAN ELECTRICITY DISTRIBUTORS

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cede the status quo is not viable. For Fashola, the crisis is a frustrating distraction from his grand plan: “We took the government out of the business of generating and selling electricity. We are here to enable others to do that.”

This latest episode, partly triggered by the oil and gas shortfalls, has made Fashola all the more determined to establish what he calls a viable energy mix.

For now, gas fires about 71% of power stations, oil about 11% and another 17% are hydropower stations, with less than 1% dependent on renewable energy.

In July, Fashola announced that he had signed power purchase agreements for 14 photovoltaic projects with a combined output of 1,125MW. It is an important, if small, step towards energy diversification, he said. When he took over the ministry, the solar tariff was set at $0.17/kWh. But after hard bargaining, he pushed it down to $0.115/kWh, still high by international standards.

in a battle at the Supreme Court, contesting Fashola’s right to hike the tariffs.

Meanwhile, the distribution companies are staggering: now they are paying an average of less than 30% of the cost of the power they are buying from NBET. At the same time, the cash-strapped NBET has not been paying the generating companies for the power they provided.

After the financial ravages of low oil and gas prices and lower production, no state bailout for the distribution companies is likely. The government is considering some radical measures.

“I think Fashola has to go around the distribution companies with a big stick,” said a Lagos-based director of a new generating company. “They have to THE AFRIC A REPORT

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NIGERIA’S PRIVATISED ELECTRICITY INDUSTRY IS A MISSHAPED PYRAMID ENDING IN A MASS OF TRAILING WIRES

pay up or sell up, then we find credible owners and start again.”

One of his fellow investors drew a parallel with radical banking reforms pushedbyLamidoSanusi ascentralbank governor several years ago: “Fashola should give the distribution companies a deadline. If they don’t meet their payments to the bulk trader, the managements should be sacked, perhaps worse,” he added “and the assets taken over by the state for eventual resale.”

Officials at the power ministry in Abuja are debating the options, but they con-

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STATE-LEVEL IMPETUS “This is a good place to begin,” he said in London at the end of July. “As it is in other jurisdictions, we expect the prices will further drop down as the technology gets better and cheaper.”

Tough timelines have been set for the solar power companies, with most of them committed to producing power within two years or have their licences suspended. Najim Animashaun of Nova Power, which is working on a 130MW solar project in Katsina State, is optimistic: “We have seen the enthusiasm of the state government […] to provide the land, to help with logistics and planning.

They know where the community needs are and how these projects can meet them,” he says. State governments are a key part of the equation, Animashaun says, because they are closer to the communities and have the best knowledge of trends in power demand.

In neighbouring Kaduna State, Governor Nasir El-Rufai is setting up special-purpose vehicles to run small projects – a mix of solar, oil-fired and minihydro – with the emphasis on fast turnaround and delivery to areas of high demand. Following suit, the power ministry has identified 45 small dams, mainly in northern Nigeria, which will speed up rural electrification. Such plans for decentralisation and diversification help at a local level, but the biggest financial and logistical questions remain unanswered at the centre. ● Patrick Smith

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COUNTRY FOCUS

NIGERIA

PROFILE

a military regime built a modern network of highways and new power stations. There was an “upgrade” in the 1990s but public investment has lagged way behind population growth.

“The choices of yesterday are haunting Nigeria,” says Fashola, lamenting the lack of productive capital spending at national level over the past 15 years, when oil prices hit record levels of over $130 per barrel. No one is going to be able to level that criticism at the Buhari government, he argues: “Our strategy is fiscal stimulus and capital investment.” He explains the government has paid N63bn to contractors for the first quarter of the year – and officials say it has spent less than 20% of its planned capital budget this year.

Babatunde Fashola Power, works and housing minister, Nigeria

YESTERDAY’S CHOICES HAUNT NIGERIA Amidst the economic downturn, the government has big plans to raise funds in order to launch a much-needed infrastructure programme

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nown as the workaholic super-minister for taking on three of the toughest ministries in government simultaneously, Babatunde Fashola has lost none of his “we can fix this” enthusiasmsincejoiningPresident Muhammadu Buhari’s government a year ago. It was Fashola’s record of sharply improving conditions in Lagos, the most populous city in Africa, that persuaded Buhari to appoint him.

This time, the job is bigger and tougher. For a few minutes, on a trip through London to see investors in August, Fashola solemnly acknowledges Nigeria’s dire economic circumstances. The question for Fashola’s big-ticket ministries is how the government will raise the N1.75trn ($5.6bn) it has promised to spend on power stations, roads and housing estates. That is four times the level of the previous government’s capital spending. The finance ministry is planning eurobond issues totalling $4.5bn over the next three years.

Trouble in the oil sector is hurting economic activity. “Well, we might not get 100% budget implementation,” he tells The Africa Report with a rueful smile, “but

STALLED PROJECTS It is not just lower oil prices and arrears to contractors that are slowing down the economy, says Fashola, but a mountain of stalled or abandoned projects. The works ministry surveyed just four contractors, which had laid off several thousand workers after state projects were suspended indefinitely under the previous government; it had allocated N13bn to roads and highway projects for 2014-2015.

But in that financial year, the ministry was managing contracts for 206 roads covering over 6,000km with contract prices totalling more than N2trn. By restructuring and relaunching many of the stalled projects, Fashola’s officials say they will create more than 20,000 jobs.

Sorting out the contractual complexities for several thousand miles of road and relaunching the national housing plan would keep most ministers busy in buoyant economic times. Yet the truly Herculean task is the one that has defeated all his predecessors: get the national electricity industry to deliver reliable power. On paper, many of the reforms are in place but the reality for most Nigerians remains worryingly adrift from the plan, with electricity generation levels crashing due to a host of political and financial factors. It will be the super-minister’s most Patrick Smith serious test. ●

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our plans were based on oil at $38 a barrel. So we are above that, and the oilminister tells me production isheadingupwardsagain.Weknow we’re going to have to do better on tax collection […] and we can.”

As governor of Lagos State, Fashola more than tripled tax revenue in the country’s commercial capital. “I think the targets are high

“We are going to have to do better on tax collection […] and we can.

The targets are high but realistic” but still realistic,” he adds before launching into his role as a cheerleader for the big-spending ministries in a time of austerity.

“How do you translate the need for all that money on infrastructure to the man on the street?”

Fashola asks as he explains that the last spending blitz on power and roads was in the 1970s, when THE AFRIC A REPORT

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COUNTRY FOCUS

Lekki axis. The Lekki axis is the site of a proposed $9bn refinery complex and the planned ultramodern Lekki airport. Lagos State says N20bn will be needed for land acquisition and compensation, and N17bn for relocation that will affect an estimated 800 structures.

JACOB SILBERBERG/PANOS-REA

TOLL COLLECTION DEAL The financial terms of the deal have not yet been revealed, but the financing team includes the Lagos-based Africa Finance Corporation, Nigeria’s Access Bank and United States-based banking giant J.P. Morgan. Works minister Babatunde Fashola has asked the National Pension Commission to help local pension funds get behind this and other projects, but there is no sign of local pension fund involvement in the fourth mainland bridge. The CROSSING THE EXISTING 12KM bridge-building consortium, which THIRD MAINLAND BRIDGE CAN includes Julius Berger Nigeria and TAKE AS LONG AS FOUR HOURS Hitech Construction, signed a build, operate and transfer (BOT) contract INFRASTRUCTURE with Lagos State, which will allow them to collect tolls for use of the bridge for a period of 40 years.

Ayodeji Ebo, head of investment Lagos State government has taken a decisive step towards advisory for Afrinvest, which was the lead adviser for the development of building a fourth bridge that would link the mainland the Lekki-Ikoyi Link Bridge, says he to the islands, in order to fight Lagos’s infamous go-slows thinks the project will go ahead: “I bet you this project is very bankable. From awkers selling sachets of water my experience, the payback period the fourth mainland bridge. It is critical and mobile-phone credit pace for this bridge may be as short as 15 infrastructure that will ease traffic along the mainland-Lagos Island corridor, a up and down the congested roads to 20 years compared to the 40 years that are set to become one of Lagos’s network of bridges that connects the concession period. Vehicular traffic biggest infrastructure projects. Choked densely populated mainland – inhaband the massive population make it with traffic, Nigeria’s economic capited mainly by the middle class and the attractive for any savvy investor.” ital could get a big boost if plans for a poor – with Lagos Island, A little-known outwhich houses top local fourth mainland bridge announced in fit called Visible Assets and international corporMay come to fruition. The Lagos State is said to be coordinatgovernment signed a memorandum of ations, as well as the rich. ing the fourth mainland Successive governunderstanding with a consortium of conbridge deal. It is led by ments in Lagos have Idowu Iluyomade, who is struction companies and financiers for mulledovertheconstruca pastor at the Redeemed the project, which is set to cost N844bn ($2.4bn) and would be the continent’s tion of this bridge. BeChristian Church of God, as was vice-president longest bridge, at 38km. fore becoming governor Estimated cost of the Yemi Osinbajo before in May 2015, Akinwunmi Some are questioning the timing of new 38km-long bridge suchahugeannouncement,withNigeria’s Ambodecomplainedthat he took office. economy reeling from the crash in oil the former government When asked about the feasibility of the project, Lagos State prices and militant activity in the southof President Goodluck Jonathan had east and north-east. But both the state commissioner for works and infrastrucrefused to sign off on the project. ture Ganiyu Johnson told The Africa The fourth mainland bridge still has government and the bankers and buildmany obstacles to surmount. Getting Report: “Lagos State is just a facilitator ers are confident that the consortium the land for the bridge is near the top can build a four-lane, dual-carriageway due to the BOT nature of the project. of the list. About 25km of its length will Due diligence was done in selecting bridge in the densely populated city of be on the heavily populated mainland these participants, and I believe they more than 21 million people by 2021. axis, 8km will be on the Lagos lagoon, are very capable of delivering.” ● For more than a decade, Lagos residChijioke Mama in Lagos while the remaining 5km will be in the ents have called for the development of

A LAGOS ISLAND LIFELINE

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$2.4bn

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TOP 200 BANKS

FINANCE

THE SLOWDOWN BEGINS The 2015 downturn in commodity prices, which hurt some of the continent’s biggest economies, led banks’ performances downward in our exclusive ranking of the continent’s financial institutions

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By Gemma Ware

YHLOON/GETTY IMAGES

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he story for Africa’s banks in the past year has been one of growth stopped in its tracks. In what has been a turgid year for our Top 200 ranking, not only have African banks’ total assets and profits fallen, so too have their total loans, deposits and the net income they make on the interest.

In our 2016 ranking, based on banks’ results for the 2015 financial year, the total assets of the Top 200 African banks fell by 1.2%, from $1.51trn in our 2015 index to $1.49trn. The past five years have been a rollercoaster for Africa’s biggest banks, and the last time there were two consecutive years of growth in total assets was between our 2009 and 2011 rankings.

The total profits of the Top 200 banks dropped by just less than $1bn to $21.5bn in our 2016 ranking. The top 10 most profitable banks in the Top 200 – six of which are South African – brought in 40% of the Top 200’s profits.

Ronak Gadhia, an equity analyst at investment bank Exotix, explains: “Banks are a reflection of the macroeconomy, and so a drop in commodity prices has resulted in a slowdown in banking sectors in commodity-driven economies.” The average price for Brent crude oil in 2015 was $52.32, down 47.1% on 2014, according to the United States Energy Information Administration. But the overall dip in total banking assets hides a mixed regional picture.

While total assets of Southern and Central African banks in our ranking fell 11.7% and 15.2%, respectively, in

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TOP 200 BANKS

North Africa they grew 11.5%, in East Africa 13.5%, and banks eked out 1.3% asset growth in West Africa.

Total deposits and total loans both fell around the same amount, with the value of deposits down 2.8% and loans down 2.9% on 2014. Again, this does not represent a universal picture: total loans and deposits increased for East and North African banks but decreased for Southern African banks. In West Africa, it was a more mixed picture, with the value of deposits down 7.5% but loans up 2.1%.

WEATHERING THE STORM There were more North African banks in the Top 200 index than banks from any other region – numbering 60, ahead of 51 from West Africa and 48 from Southern Africa. One caveat in comparing the rankings between years is that banks drop in and out of our index because of the size of their total assets and if they do not reply two years running to our questionnaire. In our 2016 ranking there are 22 newcomers, ranging from the Libyan Foreign Bank (#20) to Kenya’s Family Bank (#199).

Banks did not earn as much from their interest spreads in 2015 as they did in previous years. There was a 14.4% fall in banks’ net interest income – the difference between interest earned on loans and paid on deposits – from $76.5bn in our 2015 index to $65.5bn this year. Southern African banks in the Top 200 were the biggest losers over this period, with their net interest income dropping 29.9%, to just below 2014 levels.

But it could have been worse for Southern Africa’s banks. Jannie Rossouw, head of the School of Economic and Business Sciences at South Africa’s University of the Witwatersrand, tells The Africa Report that they are generally well capitalised and are “weathering the economic storm quite well”. Rossouw says South Africa’s economy is in a “low-growth trap”, which is exacerbated by an uncertain policy environment, 26% unemployment and weak prices for key commodities such as platinum, which is now trading cheaper than gold.

Across Africa, banks are moving to provide more services through mobile channels, with Kenya taking the lead.

But Gadhia says that for the moment, mobile banking has not proved profitable. “The major advantage is that

The shape of Africa’s top 200 banks Top 200 asset breakdown Southern Africa

North Africa

West Africa

Central Africa

East Africa

$1.491trn

$1.508trn

$1.391trn

$1.448trn

$1.368trn

2016

2015

2014

2013

2012

35%

Top 5 climbers

%

US$bn

33% 24%

24%

1.25

1.98

1.65

SOCIÉTÉ IVOIRIENNE DE BANQUE (Côte d'Ivoire)

AFRASIA BANK (Mauritius)

UNION NATIONAL BANK (Egypt)

22% 13.47

4.78

Top 5 fallers

NATIONAL BANK ARAB AFRICAN OF KUWAIT INTERNATIONAL BANK (Egypt) (Egypt)

%

US$bn

STANDARD BANK (Mauritius)

HSBC (Mauritius)

BGFI BANK (Congo)

BANCO ANGOLANO DE INVESTIMENTOS (Angola)

STANDARD CHARTERED BANK (Zambia)

1.42

3.04

1.28

8.07

0.781

25%

24%

29%

31%

12.59%

Clouds gather on Mauritius horizon 56%

Two Mauritius banks suffered the largest drops in this year’s Top 200 ranking, with analysts fearful that a new tax agreement with India, to come into effect in 2017, could spell even tougher times ahead. The agreement ends tax advantages for Indian firms routing profits though Mauritius. Financial services, which contribute 3.5% of the island’s GDP, are largely focused on India.

the mobile platform is a lot cheaper for the banks to maintain than traditional banking channels – especially branch banking. In time, as volumes increase, the efficiency of banks should also improve,” he argues.

Mobile banking has not addressed the high level of unbanked populations in most African countries. Adebisi Lamikanra, head of African financial services at consultancy KPMG, remains optimistic: “Banking penetration still remains as low as 36% in some of the larger economies. To bridge this gap, banks have started to

explore alternative operating models, including mobile banking, mobile branches and using third-party agents, and I expect that various innovative models will evolve over the next few years to reach the unbanked and the large youth population in Africa.”

BANKS FOR SALE The year ahead could hold big shakeups for the ownership of some African banks. In Kenya, new capital requirement rises under discussion could lead to a round of mergers and acquisitions, leaving fewer and bigger

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

METHODOLOGY 500 400 300 200 100 0

Total loans ($bn)

2016

North Africa West Africa

2015

2014

Central Africa East Africa

Southern Africa

2013

2012

Number of banks 60

51

12

29

48

Total profits ($bn) 22.4 21.46 2016

22 16.7

19.82 2015

2014

2013

2012

Africa’s deposits ($bn) 500 400 300 200 100 0

2016

2015

2014

2013

2012

Top 10 most profitable Standard Bank Group South Africa

FirstRand Group

South Africa

Barclays Africa Group

$1.52bn

Nedbank Group South Africa

$703m

$1.5bn

National Bank of Egypt Egypt

$648m

South Africa

$999m

Standard Bank of South Africa

$809m

First National Bank South Africa

$731m

South Africa

South Africa

banks (see page 90). Barclays’ decision in April to start selling the bulk of its 62.3% stake in Barclays Africa Group (#3) presents some new opportunities for other banks hungry for its assets.

The Atlas Mara consortium, led by former Barclays head Bob Diamond, has expressed an interest in buying the stake, though it may be a tricky deal for the group to seal. In the meantime, Barclays has already put its Egyptian operations up for sale, with Morocco’s Attijariwafa Bank (#8) one of those interested early on as it looks to expand across North Africa.

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

Commercial International Bank Egypt Attijariwafa Bank Morocco

$602m

Banque Misr Egypt

$532m

$534m

And not all banks will react to the concerns about Africa’s current weaker economic growth in the same way. Amidst concerns about an oilbacked recession at home, Nigeria’s United Bank for Africa Group (#25) is expanding its geographical reach (see page 84). But at the same time, Togo-based Ecobank (#15), which is the African bank that operates in the largest number of countries on the continent, is rethinking its appetite.

At the bank’s annual general meeting in June, Ecobank chairman Emmanuel Ikazoboh explained: “The business

S E P T E M B E R 2 0 16

WE COMPILED OUR RANKING of Africa’s top 200 banks by sending out detailed questionnaires to more than 900 financial institutions spread across the continent.

Their replies were used to create a systematic ranking of Africa’s top banks based on total asset size.

Our list features only the top 200 banks. All data is communicated to us by the banks or their parent companies. These figures relate to the 2015 financial year. Where that information was unavailable we used 2014 figures, indicated in the rankings by italics. The data was converted to US$ using the exchange rates applicable on 31 December 2015 to ensure a consistent comparison. Numbers in the ‘Rank 2015’ column refer to a bank’s position in The Africa Report’s ranking of September 2015. ●

model whereby we are just expanding and posting our flags has to be reconsidered.” Ecobank officials walked the statement back a few days later and said that the ongoing refocus could lead to the closure of some branches and the withdrawal of some banking products from certain markets.

For the bigger and pan-African banks, University of Witswatersrand finance professor Kalu Ojah says there is much more to be done. He argues that they have many priorities: “They will deepen their stability strategy by sustaining most of the gains from their 1990s reforms and insisting that regulation and supervision be not stifling. They should increase their intraregional and intracontinental expansion, innovate via financial inclusion and similar initiatives that would have them become less fragmented and become capable of mobilising significant savings for investments on the continent.”

But amid fears that the global economy could stagnate in 2016, with uncertainty following Britain’s vote to leave the European Union, the IMF predicts income per head in sub-Saharan Africa will fall for the first time since 1994. In the short term at least, many African banks may be focused on consolidation rather than expansion. ●

75

TOP 200 BANKS

Ass a nation builder, First Bank is an enthusiastic supporter of the new inventive nergy spreading across Nigeria.” Ibukun Awosika Chairman, First Bank of Nigeria (#18) en

1

1

0 Standard Bank Group

South Africa

128 493 173

5 909 719

69 865 052

76 957 298

2

2

0 Standard Bank of South Africa

South Africa

82 823 172

3 976 242

58 201 732

56 711 768

3

3

0 Barclays Africa Group

South Africa

74 239 015

2 491 078

45 619 865

44 650 856

4

4

0 FirstRand Group

South Africa

68 703 993

4 403 475

48 733 599

56 137 692

5

6

Egypt

66 154 094

2 295 527

19 829 497

57 007 864

6

5

7

8

8

7

DIFF.

RANK ’15

RANKINGS 1-40 RANK ’16

76

BANK NAME

+1 National Bank of Egypt -1 Nedbank Group +1 Banque Misr -1 Attijariwafa Bank

9

-

10

9

- Investec Group*

11

13

+2 BMCE Bank of Africa

12

10

13 14 15

COUNTRY

TOTAL ASSETS

NET INTEREST INCOME

LOANS

DEPOSITS

South Africa

60 042 588

2 959 756

44 210 652

47 078 696

Egypt

42 164 762

1 086 933

8 123 934

36 941 429

Morocco

41 420 289

1 914 140

25 484 100

27 660 105

South Africa

40 775 065

471 773

14 979 143

19 058 346

Morocco

33 132 781

1 545 748

21 173 130

25 221 547

Morocco

28 000 000

1 194 000

17 500 000

18 000 000

-2 Rand Merchant Bank

South Africa

26 832 582

-

16 450 312

13 747 272

11

-2 Banque Nationale d'Algérie

Algeria

25 260 262

1 083 595

15 047 608

-

12

-2 Banque Extérieure d'Algérie

Algeria

24 304 000

650 000

23 701 000

18 507 000

14

-1 Ecobank Transnational Inc.

Togo

23 553 919

2 105 975

11 200 349

16 427 553

-1 Groupe Banque Centrale Populaire

16

17

Egypt

22 853 963

1 241 076

7 231 467

19 968 256

17

16

-1 First National Bank South Africa

South Africa

22 742 186

-

-

-

18

15

-3 First Bank of Nigeria

Nigeria

20 705 959

1 317 164

9 031 837

14 765 482

19

18

-1 Zenith Bank

Nigeria

19 914 005

1 116 173

9 886 886

12 712 683

+1 Commercial International Bank

Libya

18 865 277

212 950

1 463 288

13 387 833

Nigeria

18 639 125

-

9 190 648

11 595 094

Egypt

16 910 253

627 089

7 703 871

13 762 060

Algeria

15 590 976

422 301

7 470 972

13 016 263

-4 Crédit Populaire d'Algérie

Algeria

15 589 781

548 305

9 818 945

12 598 243

-4 United Bank for Africa Group

Nigeria

13 680 531

1 044 908

5 152 086

10 649 567

Egypt

13 468 258

363 126

4 767 710

10 687 339

-4 Commercial Bank of Ethiopia

Ethiopia

12 880 453

-

5 195 100

11 269 546

-3 Access Bank Group

Nigeria

12 878 911

523 747

6 788 179

8 365 724

Nigeria

12 699 999

818 431

5 069 329

9 848 950

Nigeria

12 547 231

794 937

6 818 470

801 908

20

-

- Libyan Foreign Bank

21

19

-2 Zenith Bank Nigeria

22

24

23

-

24

20

25

21

26

27

27

23

28

25

29

-

30

22

+2 Qatar National Bank Alahli - Banque de l'Agri. et du Développement Rural*

+1 Arab African International Bank

- United Bank for Africa Nigeria* -8 Guaranty Trust Bank

31

-

Morocco

9 328 136

336 902

6 797 216

6 755 464

32

30

-2 Banco de Fomento de Angola

Angola

9 037 407

929 448

1 622 850

7 476 123

33

32

-1 Ecobank Nigeria

Nigeria

8 917 910

848 220

4 062 220

6 051 328

34

29

-5 Diamond Bank

Nigeria

8 713 564

543 749

3 795 265

6 130 948

35

33

-2 Société Générale Maroc

Morocco

8 488 325

417 046

6 659 128

5 834 306

36

36

Angola

8 116 808

310 547

2 396 172

6 655 117

37

28

Angola

8 067 450

530 923

2 599 590

6 897 931

- Crédit Agricole du Maroc*

0 Banco BIC* -9 Banco Angolano de Investimentos

38

-

Egypt

8 049 703

457 318

2 570 445

6 542 903

39

37

-2 Groupe BOA

Senegal

7 911 719

483 378

3 842 850

5 145 124

40

35

-5 Skye Bank*

Nigeria

7 716 638

343 583

3 536 347

5 171 005

- HSBC Bank Egypt

2015 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2014 RESULTS

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

Tunisia’s Amen Bank (#70) is aiming for an increase in deposits averaging 5.3% over the next four years.

DIFF.

RANK ’15

RANKINGS 41-80 RANK ’16

77

BANK NAME

COUNTRY

LOANS

DEPOSITS

41

-

Algeria

7 508 206

234 089

6 473 551

6 049 332

42

39

-3 Faisal Islamic Bank of Egypt

Egypt

7 068 029

259 285

5 020 093

6 268 875

43

40

-3 The Mauritius Commercial Bank

Mauritius

6 812 401

301 796

4 112 754

5 481 376

44

38

-6 BMCI

Morocco

6 297 397

298 173

4 894 839

4 239 852

45

-

46

41

47

-

48

43

49 50

- Banque de Développement Local

TOTAL ASSETS

NET INTEREST INCOME

- Société Arabe Internationale de Banque

Egypt

6 273 000

140 607

1 592 130

5 470 982

Nigeria

6 121 658

302 494

2 873 669

3 825 091

South Africa

6 107 581

200 106

-

-

-5 Bank of Alexandria

Egypt

6 049 949

354 999

3 156 727

4 782 839

42

-7 First City Monument Bank

Nigeria

5 762 885

317 766

2 946 998

3 480 077

47

-3 African Export-Import Bank*

Egypt

5 452 886

204 000

4 389 361

296 780

51

49

-2 KCB Bank Group

Kenya

5 357 704

378 187

3 321 299

4 074 152

52

46

-6 Union Bank of Nigeria

Nigeria

5 203 053

276 745

1 822 603

2 836 076

53

48

-5 Crédit du Maroc

Morocco

5 177 452

211 193

3 727 112

3 871 804

54

50

-4 Stanbic IBTC Bank*

Nigeria

5 128 863

253 353

2 212 280

3 008 524

55

44

Gabon

4 996 278

364 309

3 301 522

3 725 177

56

54

Tunisia

4 841 107

262 143

3 240 363

3 982 147

57

64

+7 National Bank of Kuwait - Egypt

Egypt

4 784 518

154 032

1 759 441

3 869 802

58

60

+2 Bank Audi Egypt

Egypt

4 743 515

176 293

2 389 673

4 080 832

59

53

-6 Al Barid Bank

Morocco

4 585 742

173 022

507 062

4 189 266

60

52

-8 Crédit Immobilier et Hôtelier

Morocco

4 524 912

180 389

3 400 256

2 526 539

61

61

Kenya

4 498 693

324 177

2 995 968

3 337 934

62

73

Côte d'Ivoire

4 284 774

191 825

2 224 799

2 480 540

63

63

4 154 512

-

-

-

64

66

+2 Equity Bank Group

Kenya

4 109 395

325 651

2 590 973

2 910 778

65

69

+4 PTA Bank

Burundi

4 094 560

151 882

2 906 775

-

66

55

621 967

2 319 385

3 109 398

67

58

68

56

69

62

70

59

71

86

+15 Ahli United Bank Egypt

72

95

+23 Al Baraka Bank Egypt

73

74

+1 Banque de l'Habitat

74

70

-4 Land and Agri. Dev. Bank of South Africa*

75

68

-7 Standard Chartered Bank Mauritius

76

76

77

71

78

81

79

65

80

45

-5 Fidelity Bank - Development Bank of Southern Africa*

-11 BGFIBank Holding Corp.

-2 Banque Internationale Arabe de Tunisie

0 Kenya Commercial Bank +11 Atlantic Business International

0 Arab Bank for Economic Development in Africa* Sudan

-11 Capitec Bank

South Africa

4 082 645

Egypt

4 065 296

-

-

-

Nigeria

3 973 274

196 522

1 683 470

2 936 719

Tunisia

3 929 163

140 396

3 003 181

2 853 953

Tunisia

3 908 174

125 974

2 939 214

2 531 136

Egypt

3 897 860

-

1 904 640

-

Egypt

3 679 552

118 632

358 055

3 227 802

Tunisia

3 604 840

137 760

2 760 305

2 309 339

South Africa

3 490 825

92 439

3 160 499

-

Mauritius

3 447 348

40 598

992 765

1 217 696

Mauritius

3 352 133

69 316

1 289 806

2 648 729

Mauritius

3 325 272

155 213

1 848 921

2 800 743

Kenya

3 287 998

189 918

2 002 290

2 547 826

-14 Afriland First Group*

Cameroon

3 287 445

232 098

2 143 405

2 248 484

-35 African Bank

South Africa

3 287 040

713 006

438 908

296 345

-9 Crédit Agricole Egypt -12 Sterling Bank -7 Société Tunisienne de Banque* -11 Amen Bank

0 Barclays Bank Mauritius -6 SBM Bank Mauritius +3 Co-operative Bank of Kenya

2015 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2014 RESULTS

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

Total assets for Zimbabwe’s CBZ Bank (#119) in the first quarter of 2016 grew to $2.1bn, a 5.2% increase compared to the same period last year.

81

84

+3 Housing and Development Bank

Egypt

3 225 907

155 076

955 664

1 493 846

82

91

+9 Equity Bank Kenya

Kenya

3 157 114

284 995

-

-

83

79

Egypt

3 143 263

63 942

1 347 070

1 690 161

84

57

Mauritius

3 038 467

41 702

1 645 791

2 557 350

85

90

86

82

87

75

88

87

89

94

90

-

- Commercial Bank of Eritrea*

91

-

- Egyptian Gulf Bank

92

96

93 104 94

83

95

93

96 100 97

80

98 102 99

99

100 109 101

85

102 106

DIFF.

RANK ’15

RANKINGS 81-120 RANK ’16

78

BANK NAME

-4 Arab International Bank* -27 HSBC Mauritius +5 Abu Dhabi Islamic Bank - Egypt -4 West African Development Bank -12 Attijari Bank -1 Suez Canal Bank +5 Export Development Bank of Egypt

+4 Banque Sahelo-Saharienne Inv. et Commerce +11 Banco de Desenvolvimento de Angola* -11 Banco Comercial e de Investimentos -2 Arab Tunisian Bank +4 Diamond Trust Bank Kenya -17 Banco Internacional de Moçambique +4 Banco Millennium Angola 0 CRDB Bank +9 Banco Sol -16 BNP Paribas El Djazair +4 Banco Caixa Geral Totta de Angola

COUNTRY

TOTAL ASSETS

NET INTEREST INCOME

LOANS

DEPOSITS

Egypt

3 003 271

123 077

-

2 590 073

Togo

2 978 679

54 465

2 253 122

-

Tunisia

2 975 902

135 259

1 888 167

2 397 456

Egypt

2 921 997

73 418

637 464

2 372 351

Egypt

2 874 771

-

1 184 779

2 232 277

Eritrea

2 850 168

13 770

109 219

2 658 753

Egypt

2 846 793

78 068

1 045 915

2 625 376

Libya

2 806 019

134 637

977 273

1 748 302

Angola

2 773 575

34 465

-

-

Mozambique

2 655 598

85 539

1 470 901

1 948 288

Tunisia

2 618 653

98 492

1 639 886

1 908 266

Kenya

2 607 443

152 902

1 704 431

1 862 898

Mozambique

2 553 080

130 539

1 406 217

1 891 136

Angola

2 520 419

106 163

981 363

1 830 965

Tanzania

2 433 518

175 792

1 467 264

1 910 776

Angola

2 408 732

179 492

739 504

2 036 330

Algeria

2 346 538

126 796

1 293 191

1 790 914

Angola

2 332 778

124 396

636 676

790 009

103

97

-6 Barclays Bank of Kenya

Kenya

2 312 419

195 946

1 395 638

1 584 797

104

89

-15 Société Générale Algérie

Algeria

2 310 720

140 727

1 437 632

1 842 368

Tunisia

2 303 044

105 160

1 702 451

1 350 716

Togo

2 292 237

150 745

1 447 386

1 530 605

Sudan

2 274 146

194 440

-

-

Kenya

2 246 068

168 974

1 105 204

1 651 546

Nigeria

2 203 305

214 167

1 223 331

1 150 261

Angola

2 193 331

72 345

376 780

2 026 994

Nigeria

2 172 769

95 552

501 539

1 581 003

Libya

2 126 775

4 614

768 059

1 219 499

Kenya

2 070 002

106 269

1 084 086

1 578 902

105 107 106 101 107

-

108

98

109 105 110 115

+2 Banque de Tunisie -5 Oragroup SA* - Omdurman National Bank -10 Standard Chartered Bank Kenya -4 Unity Bank +5 Standard Bank de Angola

111 110

-1 Citibank Nigeria*

112 113

+1 North Africa Bank*

113 131

+18 Commercial Bank of Africa

114 108

-6 Union Internationale de Banques

Tunisia

2 063 578

106 540

1 833 589

1 676 222

115 114

-1 National Microfinance Bank

Tanzania

2 059 431

165 686

1 105 777

1 604 147

Sudan

2 024 180

116 604

-

582 973

116 157 117 117

+41 Faisal Islamic Bank Sudan 0 CfC Stanbic Bank

Kenya

2 001 138

89 309

1 007 823

1 019 964

118 137

+19 AfrAsia Bank

Mauritius

1 984 925

44 535

586 984

1 809 760

119 130

+11 CBZ Bank

Zimbabwe

1 974 359

109 126

1 020 969

1 684 278

1 971 814

88 067

922 415

1 416 340

120 111

-9 Wema Bank

Nigeria

2015 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2014 RESULTS

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

121 116 122 127 123

88

124 103

DIFF.

RANK ’15

RANKINGS 121-160 RANK ’16

80

To o have given 10% to over 1,300 employees is one of the broadest employee scchemes in Namibia.” Junius Mungunda CEO, Standard Bank Namibia (#140)

BANK NAME

-5 Banco de Negocios Internacional*

COUNTRY

TOTAL ASSETS

NET INTEREST INCOME

LOANS

DEPOSITS

Angola

1 962 324

63 557

858 800

1 508 392

Sudan

1 959 992

143 410

975 497

1 558 664

-35 BGFI Bank Gabon

Gabon

1 957 058

114 936

1 233 165

1 609 272

-21 First National Bank of Namibia

Namibia

1 931 811

90 998

1 480 993

1 553 515

+5 Bank of Khartoum

125 118

-7 Société Générale de Banques en Côte d'Ivoire*

Côte d'Ivoire

1 887 007

129 124

1 098 349

1 560 758

126 121

-5 First National Bank of Botswana

Botswana

1 850 609

77 043

1 133 573

1 520 704

Namibia

1 819 984

81 870

1 532 115

1 436 298

127 112

-15 Bank Windhoek

128 122

-6 African Banking Corporation Holdings

Botswana

1 810 189

95 813

1 176 954

1 387 624

129 120

-9 Banque Al Baraka d'Algérie

Algeria

1 798 293

72 629

891 608

1 435 881

130 124

-6 Mainstreet Bank*

Nigeria

1 795 348

-

252 365

698 168

131 123

-8 Ecobank Ghana

Ghana

1 741 276

266 228

811 302

1 258 883

132 148

+16 Banque Atlantique - Côte d'Ivoire*

Côte d'Ivoire

1 672 489

78 399

725 239

1 010 896

133 143

+10 Union National Bank Egypt

Egypt

1 654 182

54 377

657 861

1 328 192

Algeria

1 653 523

73 634

863 063

1 198 895

101 259

974 364

1 164 400

134

-

- Citibank NA Algeria*

135 126

-9 Gulf Bank Algeria

Algeria

1 647 837

136 132

-4 NIC Bank

Kenya

1 591 567

93 528

1 100 713

1 078 701

Mauritius

1 589 351

56 428

925 913

777 206

-9 I&M Bank

Kenya

1 582 297

105 768

1 103 302

1 120 186

-6 Natixis Algérie*

Algeria

1 569 364

85 575

868 773

1 287 099

Namibia

1 556 082

74 343

1 128 053

1 180 310

Côte d'Ivoire

1 523 475

107 940

806 076

1 173 057 963 830

137

-

138 129 139 133

- Investec Bank Mauritius*

140 119

-21 Standard Bank Namibia

141 134

-7 Ecobank Côte d'Ivoire*

142 135

-7 Union Bancaire pour le Commerce et l'Industrie Tunisia

1 442 461

78 947

1 172 207

-3 Bank of Africa - Benin

Benin

1 420 375

65 441

437 742

862 861

Mauritius

1 418 902

14 177

100 753

1 164 809

Algeria

1 406 475

50 756

563 287

1 123 871

Kenya

1 399 637

44 072

991 728

905 031

Mozambique

1 396 447

64 466

569 713

985 556

143 140 144

77

145 141 146 158 147 138

-67 Standard Bank Mauritius -4 HSBC Algeria* +12 Chase Bank Kenya -9 Standard Bank Mozambique

148 128

-20 CCEI Bank GE

Equatorial Guinea

1 391 631

56 144

1 084 060

920 132

149 139

-10 CBAO Groupe Attijariwafa Bank

Senegal

1 382 132

101 793

1 249 280

1 084 368

150

-

- Investec Bank South Africa*

151 136

-15 Misr Iran Development Bank

152 144 153 149 154 160 155 147 156 125

-8 Afriland First Bank -4 Barclays Bank of Botswana +6 Arab Banking Corporation (Egypt) -8 Société Générale Cameroun -31 BGFIBank Congo

South Africa

1 367 798

4 649

-

-

Egypt

1 360 414

34 079

483 434

1 053 700

Cameroon

1 297 543

74 542

878 946

1 010 834

Botswana

1 293 094

80 290

863 266

975 206

Egypt

1 291 000

-

326 000

1 083 000

Cameroon

1 285 295

92 022

940 285

1 016 392

Rep. of Congo

1 276 000

112 000

821 000

994 000

157 168

+11 NSIA Banque Côte d'Ivoire (ex. BAIO)

Côte d'Ivoire

1 252 604

78 497

839 598

978 891

158 181

+23 Société Ivoirienne de Banque

Côte d'Ivoire

1 247 951

70 970

832 811

912 222

1 247 386

82 677

994 412

946 501

1 247 059

82 592

758 315

961 252

159 154

-5 Société Générale de Banques au Sénégal*

Senegal

160 153

-7 BICEC

Cameroon

2015 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2014 RESULTS

THE AFRIC A REPORT

●

FINANCE SPECIAL

●

S E P T E M B E R 2 0 16

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TOP 200 BANKS

Barclays Bank of Ghana (#186) helped arranged the 5-year government bond that raised 811m cedis ($206m) from investors in June 2016.

161

-

- Piraeus Bank Egypt*

Egypt

1 246 047

-

792 607

1 040 601

162 156

-6 Diamond Bank Bénin

Benin

1 227 854

50 417

512 625

840 381

DIFF.

RANK ’15

RANKINGS 161-200 RANK ’16

82

BANK NAME

COUNTRY

TOTAL ASSETS

NET INTEREST INCOME

LOANS

DEPOSITS

163 145

-18 GCB Bank

Ghana

1 212 365

190 355

388 553

874 461

164 142

-22 National Bank of Kenya

Kenya

1 204 227

61 416

650 918

1 061 976

165 163

-2 Awash International Bank

Ethiopia

1 175 314

38 352

571 793

863 422

166 162

-4 Ecobank Burkina Faso

Burkina Faso

1 172 359

64 089

610 095

821 382

Botswana

1 158 591

41 585

196 496

870 575

Ethiopia

1 154 492

86 153

537 389

923 734

Ghana

1 137 279

134 420

516 402

751 661

Equatorial Guinea

1 129 474

41 382

143 618

1 071 053

Burkina Faso

1 096 851

52 299

583 511

654 513

DRC

1 086 100

92 290

444 340

733 280

Senegal

1 082 941

63 777

529 280

838 106

Burkina Faso

1 082 517

55 953

603 010

614 896

1 081 451

90 329

556 001

707 142

167 146 168 164 169 159 170 161 171 182 172 177 173 167 174 174

-21 Standard Chartered Bank Botswana -4 Dashen Bank -10 Stanbic Bank Ghana* -9 Banco Nacional de Guinea Ecuatorial* +11 Bank of Africa – Burkina Faso +5 Rawbank -6 Ecobank Senegal 0 Coris Bank International

175 150

-25 Stanbic Bank Uganda

Uganda

176 165

-11 Stanbic Bank Zambia*

Zambia

1 071 368

42 785

522 981

772 087

Ghana

1 070 455

143 596

387 672

781 418

Benin

1 066 868

60 983

447 538

652 841

177 178 178 171 179

+1 Fidelity Bank Ghana -7 Ecobank Benin - Central Africa Building Society

Zimbabwe

1 042 945

100 870

39 247

829 080

180 184

+4 Banque de Développement du Mali

Mali

1 017 726

48 964

470 715

647 669

181 183

+2 Bank of Africa - Côte d'Ivoire

Côte d'Ivoire

1 013 920

42 199

432 502

503 968

Mauritius

1 012 656

24 887

738 663

741 362

Côte d'Ivoire

993 234

64 008

617 726

862 714

Angola

961 208

70 460

430 715

712 932

Uganda

956 088

140 342

515 989

664 574

Ghana

939 647

105 201

432 750

606 081

Namibia

896 923

38 188

635 784

433 175

Mali

894 562

50 451

431 872

534 973

Mali

887 249

59 557

338 870

504 170

-

182 172 183 187 184 173 185

-

186 180 187

-

188 179 189 193 190

-

191 152

-10 SBI Mauritius* +4 BICICI -11 Banco Regional do Keve - Standard Chartered Bank Uganda* -6 Barclays Bank of Ghana - Nedbank Namibia -9 Bank of Africa - Mali +4 Ecobank Mali - Banque Zitouna -39 Standard Chartered Bank Ghana

Tunisia

885 457

38 605

616 560

754 256

Ghana

876 764

97 254

317 315

630 328

192 189

-3 CAL Bank

Ghana

875 477

57 587

469 753

417 073

193 192

-1 Ecobank Cameroon

Cameroon

872 390

64 647

547 874

734 284

194 188 195 155 196 191 197 190 198 170

-6 Citibank NA Kenya -40 Bank of Baroda - Mauritius* -5 Banco Comercial do Atlântico -7 Société Commerciale de Banque Cameroun -28 Standard Chartered Bank Zambia

Kenya

846 214

54 513

255 635

595 410

Mauritius

808 450

2 265

356 953

283 417

Cabo Verde

800 976

19 204

371 740

684 753

Cameroon

794 675

68 216

446 426

577 683

Zambia

780 972

48 278

320 159

675 677

780 301

61 439

536 197

602 024

779 243

32 552

388 829

203 058

199

-

- Family Bank

Kenya

200

-

- Ind. Development & Workers Bank of Egypt

Egypt

2015 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2014 RESULTS

THE AFRIC A REPORT

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FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

NIGERIA BATTERED BUT NOT BROKEN Foreign-exchange restrictions and the pains of the oil-fuelled economy have hurt bank performance.

The sector is better prepared than it was in 2009, but it may not return to full health for some time

T

he difficult days of the 2009 banking crisis seem to be back, but a full-scale shake-out does not appear to be on the cards. Sustained low oil prices and the consequent decline in foreign-exchange earnings has caused turbulence in Nigeria’s banking industry, but the situation is markedly different today. The industry now surpasses the capital adequacy ratio set by the central bank and benefits from stronger regulation. But bank managers are left asking how bad things will get.

The country is in a recession and the International Monetary Fund predicts that the economy could shrink by 1.8% in 2016. Much like the broader

BANK NAME

PROFITS ($m)

TOTAL ASSETS ($bn)

Top Nigeria Banks RANK IN TOP 200

84

18 First Bank of Nigeria

20.7

75.3

19 Zenith Bank

19.9

525.1

21 Zenith Bank Nigeria

18.6

491.0

25 United Bank for Africa Group

13.7

296.5

28 Access Bank Group

12.9

327.4

29 United Bank for Africa Nigeria*

12.7

217.6

30 Guaranty Trust Bank

12.5

494.2

33 Ecobank Nigeria

8.9

56.2

34 Diamond Bank

8.7

28.1

40 Skye Bank*

7.7

52.9

2015 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2014 RESULTS

Nigerian economy, the banks’ fortunes had soared in recent years due to oil sector growth, underpinned by $100plus oil prices. The significant exposure of most banks to the oil industry led to heightened anxiety towards the end of the last financial year when Oando, an indigenous oil major, declared one of the largest losses in the history of corporate Nigeria for its 2014 fiscal year.

Several banks issued profit warnings, and the subsequent release of full-year results in April of this year lifted the veil on the extent of the damage. First Bank (#18), the country’s largest bank by assets, recorded an 82% drop in profits to N15.1bn ($47m) and announced that

it would lay off 1,000 staff in order to restructure its costs. Analysts reported that nearly 50% of the bank’s loan book was exposed to the oil and gas sector.

So far, Skye Bank (#40) – which acquired Mainstreet Bank, one of the banks nationalised after the 2009 crisis – has suffered the most turbulence. The central bank provided an emergency shortterm credit facility and replaced the bank’s leadership in July when it failed to meet capital adequacy requirements.

Diamond Bank (#34), which had been aggressively challenging the industry leaders, recorded a 78% decline of its 2015 profits to N5.7bn and now looks set to rein in its bullish expansion.

PROFILE

Sterling Bank LOOKING FOR A SUITABLE BRIDE AMIDST THE RUMBLINGS in Nigeria’s banking sector, Sterling Bank (#68), a lender in the lower tier of the industry rankings, is fine-tuning plans to catapult into the top ranks. At the beginning of the year, chief executive Yemi Adeola said the bank’s goal is to be ranked among the top six in the industry by 2020.

He announced an aggressive plan to almost double its existing customer base of 1.4m, bringing in an additional 1m by the end of the year.

Sterling Bank has been growing through mergers

and acquisitions, and is in the market for a new one.

The bank had announced that it was in talks to acquire Keystone Bank, the last of the four banks taken over by the central bank following the industry crisis in 2009.

But Sterling chief financial officer Abubakar Suleiman confirmed in July that it was no longer looking at the Keystone acquisition because it was not a strategic fit.

“We are trying to find an opportunity that allows us to increase our size, but at the same time we are paying more

attention now to the specific market segment where the company has its strength,” Suleiman told the media.

Noting that the bank will now focus on retail banking, Suleiman pointed out that it remains on the lookout for a viable target. In 2011, Sterling acquired Equatorial Trust Bank, a smaller bank which was owned by billionaire entrepreneur Mike Adenuga.

A further priority is to raise debt capital of N35bn ($109m) to enhance its capacity to issue loans, although this appears to have been delayed THE AFRIC A REPORT

●

as the bank missed its initial target of February.

Since NAL Bank became Sterling Bank following the combining of four other banks – NBM Bank, Trust Bank of Africa, Magnum Trust and Indo-Nigeria Merchant Bank – in 2006, the bank has grown its assets by 772% from N110bn in 2006 to N959bn.

For the first half of 2016, Sterling Bank reported a drop in profit to N4bn from N5.4bn in the corresponding period last year. Notably, however, its non-performing loan ratio was low at 2.8%. ● C.I.

FINANCE SPECIAL

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S E P T E M B E R 2 0 16

TOP 200 BANKS

DAN KITWOOD/GETTY IMAGES

that there could be a reduction in fee income to the banks, albeit marginally.

With the struggling oil sector and foreign exchange difficulties, Nigerian banks must explore new avenues by which to generate returns for shareholders. Retail sector banking is one area that has received much attention in recent years, and First Bank has announced its goal of picking up an additional 10 million customers using the agency banking model.

There could be further consolidation of the sector, as in 2009. The central bank said in July that it is monitoring a couple of banks that may have difficulty meeting prudential capital and other ratios. Sterling Bank (#68, see profile) and Wema Bank (#120) both announced in August that they would issue bonds to raise funds to take over smaller peers.

While capital levels are adequate now, the problem of bad loans has not been fully addressed. Nigeria’s nonperforming loans rose from 3.6% in mid-2015 to 10.1% in April, according to figures from the central bank. That is well above the regulatory limit of 5%, suggesting that more trouble could be coming. The central bank issued an unexpected 2% rise in its benchmark interest rate in July to 14%, which will increase pressure on borrowers.

THE NAIRA’S BIG DIVE The crash in the oil price dried up the inflows of foreign currency into the economy, creating another transmission belt of trouble for the banking sector. After months of deliberations, President Muhammadu Buhari’s government liberalised a restrictive foreign exchange regime in June, and the naira lost about 40% of its value.

Commenting on the scarcity of foreign exchange up until June, United Bank for Africa (UBA, #25) chief financial officer Ugochukwu Nwaghodoh said “the inevitable scarcity of foreign curTHE AFRIC A REPORT

●

FINANCE SPECIAL

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THE NAIRA LOST 40% OF ITS VALUE WHEN IT WAS FLOATED IN JUNE TO BOOST FOREIGN-CURRENCY INFLOWS

SEARCH FOR NEW SECTORS Lending, however, has been tepid as the lack of adequate credit and risk assessment mechanisms for retail and small business lending have hindered the banks’ ability to exploit opportunities.

Andrew S. Nevin, chief economist at the PwC consultancy in Lagos, explains the challenges that banks now face regarding lending: “They are going to have to lend to other sectors outside of the oil and gas so I think it’s going to force banks to start to take some risks on their assets and they are going to have to get much better risk assessment, risk management. [...] They are going to have to do some real lending into the middle side sector because the corporate sector, the top corporates, the lending rates are very low.”

The emerging picture from the released first quarter results for 2016 shows the banks being cautious. First Bank reported marginal growth of retail loans to 16% from 14% in the fourth

rency has apparently reduced foreign currency-related transaction banking volumes, like trade service offerings and FX trading income.” In August, the central bank insisted that banks provision more for their loans denominated in foreign currencies.

A further factor that is impacting the income potential of the banks is the government’s Treasury Single Account (TSA) policy. This mandates public agencies to hold Q1 results from 2016 show their funds in accounts with the banks being cautious as they the central bank rather than reduce exposure to oil and gas at commercial banks. Previous policy led to opaque acquarter of 2015, noting that further counting and made it nearly impossible diversification of its loan book will to know how much money revenuebe carried out as it aims to reduce its generating agencies actually made. exposure to oil and gas. UBA grew its The implementation of the TSA policy has had a significant negative impact loan book by 1% year-on-year, reflecton the banks as they no longer have ing its low risk appetite. Ratings agency Fitch predicts that loan growth will be access to cheap sources of public secweak into 2017. tor deposits to trade with.

But as the banks try to shift away from The government has also elimindepending on the oil sector, the fallated a key charge on transactions on out from previous deals may not be current and checking accounts. Based on a schedule published in 2013, the over. In May, the Economic and Financial Crimes Commission questioned central bank had informed the banks the chief executives of three banks as that the charge would be gradually it investigates embezzlement of state phased out until 2016, when it would be fully removed. Although this has been funds under the government of Prescounterbalanced by the introduction ident Goodluck Jonathan. ● Charles Idem in Lagos of stamp duty charges, it is anticipated

S E P T E M B E R 2 0 16

85

TOP 200 BANKS

MOROCCO

Amid construction and tourism doldrums and predicted growth of only 1% Moroccan banks have had to diversify their activities at home, and are increasing their expansion in sub-Saharan Africa

M

41.4

534.0

10 Groupe Banque Centrale Populaire

33.1

304.6

11 BMCE Bank of Africa

28.0

198.0

31 Crédit Agricole du Maroc*

9.3

57.6

35 Société Générale Maroc

8.5

69.7

44 BMCI

6.3

41.6

53 Crédit du Maroc

5.2

7.7

59 Al Barid Bank

4.6

17.3

60 Crédit Immobilier et Hôtelier

4.5

53.9

0.3

12.6

(315) Salafin

2015 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2014 RESULTS

to-deposit ratio has decreased steadily over the years to 98% in 2014 and 94% in 2015. Credit growth has been well below the 4% target set by the Bank AlMaghrib (BAM), the central bank. Loans to businesses fell 2.6% in 2015, and, most significantly, loans to real estate companies fell by 7%. Loans to manufacturing companies also dropped by 5.9%. This lack of credit growth also extends to consumer loans – in particular mortgages.

The total number of approvals for mortgage loans in 2015 was 6,974, the lowest number since 2005.

The BAM has taken a number of steps to encourage lending, including interest

rate cuts in September and December 2014, and again in March 2016, when the baseline interest rate was cut by 25 basis points to 2.25%. Many small and medium-sized enterprises in Morocco are family run, which means they often do not have the accounting frameworks or collateral necessary to get loans from thecommercialbanks.Manyretailclients complain that interest rates are too high and that they are asked to meet stringent criteria in order to qualify for loans. The banks may also have been discouraged from cutting their rates too far by the rise in the number of non-performing loans in recent years, which increased from 5.9% in 2013 to 7.1% in 2015.

Morocco has avoided the problems seen in other North African countries such as Egypt, where the government leans on the country’s banks to support government finances. Jason Tuvey, Middle East analyst at Capital Economics, explains: “Morocco has carried out important fiscal reforms in recent years, such as cutting all fuel subsidies. This has helped to cut the budget deficit to 4% and has allowed the banks to focus on their own businesses.”

Morocco’s biggest banks in terms of their loan book Attijariwafa Bank

BMCE Bank of Africa

$25.5bn

$17.5bn

Crédit Agricole du Maroc

$6.8bn

Crédit du Maroc

Société Générale Maroc

Groupe Banque Centrale Populaire

$21.2bn

$6.7bn

$3.7bn

BMCI

Crédit Immobilier et Hôtelier

$4.9bn

Salafin $144m Al Barid Bank $507m

Rank in the Top 200 8

10

11

31

35

44

53

60

59

(315)

SOURCE: TAR RESEARCH

$3.4bn TOTAL $90.4bn

PROFITS ($m)

BANK NAME

8 Attijariwafa Bank

SEEKING GROWTH OPPORTUNITIES

oroccan banks have expanded widely at home and abroad in recent years. BMCE Bank of Africa (#11) and Attijariwafa Bank (#8), which is part-owned by the sovereign wealth fund Société Nationale d’Investissement, are household names and have set up branches on seemingly every street corner. The country’s central bank estimated in 2015 that 64% of Moroccans have a bank account.

Banks are well capitalised, and customer deposits finance 69% of total assets. Attijariwafa reported 3.4% profit growth, up to $457.3m, in 2015. But banks are loaning less, and the average loan-

TOTAL ASSETS ($bn)

Top Morocco Banks RANK IN TOP 200

86

VULNERABILITY Nevertheless, the banks have not completelyescapedcontagionfromtheglobal financial downturn. A prolonged crisis in the construction and real estate industries, caused by a collapse in demand for propertyfromEuropeansand Moroccans abroad, has hurt some of the country’s biggest developers, such as Addoha and Alliances. Like other North African countries, Morocco has recorded a steady declinein the number of touristarrivals.The closure of the Samir oil refinery in August 2015 amid debts of at least $4bn, ● ● ●

THE AFRIC A REPORT

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88

TOP 200 BANKS

has also dangerously exposed the banks. The International Monetary Fund recently noted that Morocco’s banks are vulnerable to large corporate defaults.

As retail lending has slowed, the banks have begun to branch out into additional services such as providing insurance cover. Wafa Assurance, a subsidiary of Attijariwafa Bank, recorded turnover of $600m in 2015, 5.4% higher than in 2014.

KatoMukuru,headofequitiesresearch at Exotix Partners, says banks may need new strategies: “The banks have done a goodjobofoffsettingfundedincomewith non-funded income, but the growth in this sector is also starting to decline now.”

Morocco’seconomicgrowthprospects are also a worry. Although 2015 growth was more than 4%, projections for 2016 have been slashed due to a catastrophic failure of the rains during the agricultural growing season. The agriculture ministry estimates that the harvest will fall 70% compared with 2015, which prompted BAM governor Abdellatif Jouahri to predict growth of just 1%. ●●●

BEHIND THE TIMES In some ways, Morocco’s banking sector is behind the times: mobile phone money-transfer services do not exist; cheques are still widely used; and few banks offer the opportunity to manage accounts online. The number of card payments online and in shops is still quite small – just 600,000 a day, with all transactions managed by the private company Centre Monétique Interbancaire.

Development of the sector is also hampered by heavy regulation and the fact that the Moroccan dirham is a non-convertible currency, which means that all modes of payments must be operated by an entity based in Morocco.

Moroccans cannot buy goods abroad using dirhams and companies such as PayPal cannot operate in Morocco.

There is some good news on the regulation front, with a widely-welcomed new banking law introduced in 2014.

The new law established a framework to meet the international Basel banking requirements and grants the BAM exceptional powers to deal with failing banks. It also allows the BAM to extend its regulatory and supervisory power and improve cross-border supervision.

A forthcoming law also aims to enhance the independence of the BAM and to expand its role to include contributions to financial stability and the oversight of financial market infrastructure.

PROFILE

Othman Benjelloun Chief executive, BMCE Bank of Africa (#11)

MOROCCAN BANKING’S HIGH ROLLER WHEN MOROCCO’S THIRD-LARGEST BANK by assets, Banque Marocaine du Commerce Extérieur (BMCE), re-named itself BMCE Bank of Africa in late 2015, the direction of its ambitions was clear.

Since its earliest days, the bank has shown a strong interest in Africa, with its chief executive Othman Benjelloun amongst the first Moroccan business leaders to move into the sub-Saharan market.

In the 1980s, BMCE bought the Banque de Développement du Mali; it acquired a 75% stake in the Mali-based Bank of Africa group in 2007. The strategy appears to have paid off, and BMCE had assets of $28bn in 2015 and offices in 20 African countries. Since the beginning of its African expansion, BMCE has been

in strong competition with Morocco’s biggest bank, Attijariwafa. At the end of 2015, 24% of BMCE Bank of Africa’s loan book was devoted to subSaharan Africa.

The flamboyant 83-year-old Benjelloun, Morocco’s richest man and the 12th richest in Africa according to Forbes magazine, shows no sign of slowing down after a lifetime of high-risk gambles. A former adviser to King Hassan II and president of the Al Akhawayn University in Ifrane, Benjelloun made his fortune through FinanceCom, which is a majority shareholder of insurance company RMA Watanya. Benjelloun also has a minority stake in Méditel, Morocco’s second-largest mobile phone operator.

In coming months, the banking landscape will be transformed with the expected approval of the first Islamic banking licences. The country passed a regulatory framework in 2015, and there has been considerable interest in providing products such as interest-free car loans and Takaful collective insurance policies.

Although several deadlines to issue the first licences in early 2016 were missed, it is widely expected that Bahrain-based Al Baraka Banking will be the first company to enter the market. “Islamic banking is an interesting development” says Exotix’s Mukuru. But he says he doubts its capacity to boost revenue: “Where are the customers? It’s not going to replace income, for example from tourism.”

If growth prospects at home are limited, Moroccan banks have not wasted any time breaking into the sub-Saharan

This year, Benjelloun announced a $100m plan to build Africa’s highest tower – a 65-storey building in the Bouregreg Valley near Rabat – and launched a new ferry company to transport passengers and cars between Morocco and Europe. In the coming years, BMCE plans to open an average of 100 agencies per year in Morocco and across Africa, with Benjelloun specifically eyeing Anglophone and Lusophone markets.

BMCE also says that it will increase access to online banking services and play a leading role in the development of Casablanca Finance City, an ambitious but so far largely unfulfilled plan to create a financial hub for Africa. ● C.H.

market. With clear support from the royal palace, Moroccan banks have expanded at a dazzling rate. Attijariwafa Bank now has more than 3,500 branches in subSaharan Africa. While this expansion has mostly been limited to West Africa and Francophone markets, in recent years Attijariwafa Bank has given clear signals that it is actively targeting East Africa, including Kenya and Ethiopia.

In February, Attijarawifa was in the race to buy the Egypt operations of Barclays.

Nevertheless, this continuing expansion may not be a silver bullet. Tuvey of Capital Economics says: “Morocco’s ambitionstobeafinancialhubforAfricamay not be that realistic. What really needs to happen is a careful growth of industries such as manufacturing, which will help to stimulate domestic lending.” ●

THE AFRIC A REPORT

Celeste Hicks in Casablanca ●

FINANCE SPECIAL

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S E P T E M B E R 2 0 16

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TOP 200 BANKS

KENYA ONLY THE STRONG WILL SURVIVE Kenya’s two largest banks are in hot competition to lend more through mobile borrowing and agency banking. Meanwhile, smaller banks undergo a shake-up after three go into receivership

BANK NAME

PROFITS ($m)

TOTAL ASSETS ($bn)

RANK IN TOP 200

Top Kenya Banks

51 KCB Bank Group

5.4

188.4

61 Kenya Commercial Bank

4.5

159.9

64 Equity Bank Group

4.1

166.3

78 Co-operative Bank of Kenya

3.3

112.4

82 Equity Bank Kenya

3.2

N/A

96 Diamond Trust Bank Kenya

2.6

63.4

103 Barclays Bank of Kenya

2.3

80.6

108 Standard Chartered Bank Kenya

2.2

60.9

113 Commercial Bank of Africa

2.1

34.5

117 CfC Stanbic Bank

2.0

47.1

2015 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2014 RESULTS

T

hanks to mobile and agency banking, Kenya’s top lenders are continuing their rapid growth. Mobile banking has created mounds of useful customer data. This has spawned what Joshua Oigara, the chief executive officer of Kenya Commercial Bank (KCB, #51), has deemed “algorithmic banking”.

Unlike traditional banking, algorithmic banking does not require human interaction. A customer of the bank can apply for a loan using an app on their mobile phone, and an algorithm will decide whether or not to approve the request based on the user’s credit score.

Kenya’s largest banks, KCB and Equity Bank (#64), are the biggest players using this model. KCB reported a 16.6% jump in yearly profits in 2015 thanks in part to mobile banking. Equity Bank’s yearon-year pre-tax profit grew by 20% to KSh7.3bn ($72m) for the period ending 31 March 2016. A 22% rise in the value of its loan book helped to raise its profits.

KCB and Equity Bank are locked in fierce competition to get more people to borrow using their phones. Although KCB has the most mobile-banking customers in the country, Equity’s customers are borrowing significantly more per customer. KCB loaned $89.8m to five million customers on its M-Pesa platform in 2015, while Equity loaned $83.9m to just 1.7 million customers through its Equitel service.

EQUITY’S AGENCY LEAD Equity Bank is beating its main competitor in agency banking, which uses retailers and other businesses to conduct transactions. Last year, Equity made $29.6m more through agency banking than KCB, according to both banks’ annual reports. More than half of the

DANIEL IRUNGU/EPA/MAXPPP

90

MOBILE MONEY IS INCREASINGLY USED FOR BORROWING: KCB LOANED $89.8M THROUGH M-PESA IN 2015

country’s 40,000 agents were contracted

by Equity Bank alone. Equity’s agents conducted more transactions than all its tellers and cashpoints combined.

This intense competition in mobile and agency banking is positive news from a period that seemed to be mostly gloom. Several banks reported a rapid rise in non-performing loans in their 2015 financial results. Factors contributing to this increase were a mid-year rise in interest rates, the robust regulatory system and an uncertain macroeconomic environment.

Three Kenyan banks – Chase Bank (#146), Dubai Bank Kenya and Im-

perial Bank – went into receivership between mid-2015 and early 2016 due to governance and liquidity problems.

Chase Bank’s books showed its bad loans had gone up threefold to $117m in its restated financial results released in April 2016. It was the biggest jump for any lender and raised concern about under-reporting of bad loan portfolios.

A decline in profits has caused concern for some of Kenya’s banks. Barclays (#103) reported marginal growth in bad loans last year, to $60.5m from $52.6m in 2014. On the whole, 2015 was not a good year for Barclays. It recorded flat growth as corporate lending slowed down and increased rates reduced borrowing. Its competitor, Standard Chartered (#108) recorded a drop in profits to $90.8m in 2015 from $141.1m in 2014.

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TOP 200 BANKS

But profits are not the only thing worrying executives in Nairobi. Next year will be a national election, and election years usually bring economic slowdowns. However, the last electoral contest in 2013 points to more resilience in the sector. As the macroeconomic environment is already uncertain due to global headwinds, most banks could be forced to dial back their immediate expansion strategies.

EXPANSION PLANS Several banks – including KCB, Equity, NIC Bank (#136), and Diamond Trust Bank (#96) – announced ambitious expansion plans last year. The overriding motivation is to improve branch networks across the East African region. In October, Equity entered the Democratic Republic of Congo (DRC) by acquiring 79% of ProCredit Bank, which is the country’s seventh-largest bank by assets. KCB has been more cautious, while Diamond Trust Bank is already looking at the DRC and possibly Madagascar.

Just weeks before Chase Bank was placed under receivership in March KCB’s Oigara told reporters that his bank is looking for medium-sized lenders to acquire. This explains the bank’s successful boardroom campaign to be the first to review the distressed lender’s assets. If the purchase goes through, Chase Bank’s 57 branches would nudge KCB’s branch network up to more than 300.

It would also help the brand tap into a market big lenders have been losing to smaller ones. Francis Waithaka, an analyst based in Nairobi, says: “KCB is good at operations; Chase Bank is good at relationships.” Most market-watchers see this as the basic distinction between Kenya’s banking tiers. Big lenders are looking to acquire smaller banks from which they can tap into market trends to compete with microfinance institutions.

The recent troubles at Dubai, Imperial and Chase banks also piled pressure on the regulator to reconsider a proposal to raise core capital requirements.

Data from the central bank shows that while Kenya has 42 banks, the biggest five control 70% of financial sector assets. Given that the most turmoil has been suffered by small banks – Dubai Bank was the smallest bank in Kenya by most measures at the time of its collapse in August 2015 – there is pressure forcing them to merge or sell.

Kenya’s cabinet secretary for finance, Henry Rotich, announced in early June THE AFRIC A REPORT

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FINANCE SPECIAL

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this year that he would be reintroducing a proposal to raise core capital requirements for banks. When the same proposal came up in June last year, newly appointed central bank governor Patrick Njoroge argued against it. “If banks want to deal in more risky assets, they should provide more capital to match risk,” Njoroge told a parliamentary committee. To him, such an increase in capital would be unnecessarily disruptive.

For his part, Rotich says the government’s focus is also to encourage banks to lower their lending rates to spur more economic growth. The central bank’s main lending rate is 10.5% but the average interest rate on bank loans in 2015 was 18.1% according to central bank statistics.

Is it unlikely Njoroge will win the argument on capital requirements this time, as financial analysts already predict that there has been a quiet flight to stability, leaving small lenders in even more trouble. There are few choices for Kenya’s small banks, according to Aly-Khan Satchu, a Nairobi-based financial analyst: “Tier three is for sale and at bargain basement prices. That’s the reality,” he says. There are moves to consolidate two small government banks with National Bank (#164), which is also in distress.

Financial analysts predict that the next three years are likely to see fewer but stronger Kenyan banks. Barriers to entry and costs of doing business are also likely to go up, further impacting on profits. ● Morris Kiruga in Nairobi

PROFILE

John Gachora Group managing director, NIC Bank

GETTING CLOSER TO CUSTOMERS’ POCKETS JOHN GACHORA WAS PURSUING A DOCTORATE in electrical engineering when Wall Street came calling. The Massachusetts Institute of Technology-educated engineer found himself at home in banking and became group head of Bank of America’s investment banking division. He then moved to South Africa as managing principal of Absa Capital in 2009 before taking the helm of Absa Africa in 2010.

Since September 2013, Gachora has headed mid-tier Kenyan lender NIC Bank (#136).

Incorporated in 1959, the bank has operations across East Africa and has an ambitious expansion strategy. Gachora’s main ambition for NIC is to make the bank more convenient for its

S E P T E M B E R 2 0 16

customers. “I want to be a walking distance from your pocket,” he says, laying out a model he has dubbed “aspirational banking”.

He defines that model as knowing what your customer wants and making it happen for them.

NIC Bank has not been spared the banking sector’s recent difficulties. Nonperforming loans (NPLs), for example, grew to $141.6m in 2015 from $68m in 2014. “Our NPLs book grew so much because we had a small number of big borrowers who defaulted. Couple that with the cash crunch that the government has been going through, and you’ll find that there’s a lot of stress on clients right now,” Gachora says.

For the banking sector as a whole, Gachora sees

the immediate role of executives like him in rebuilding lost trust with clients. “As the regulator does its job, we also need to find solutions as industry players to stabilise the sector,” he says. This year, Kenya’s central bank chose NIC as its assets and liabilities consultant for Imperial Bank, which was put into receivership.

“Competition here is serious,” he says. Gachora adds that the uniqueness of Kenya’s banking sector and the hunger for growth are assurances that the recent wave of bank failures will strengthen the sector.

“There’s a solid argument for raising core capital requirements to ensure we build banks that can compete properly even outside our borders,” he argues. ● M.K.

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TOP 200 BANKS

TROUBLE ON THE HOME FRONT Banks have shown resilience in the face of economic slowdown, but there are more challenges to come.

Most are cutting costs at home and for some, their pan-African expansion will lose pace

BANK NAME

1 Standard Bank Group

PROFITS ($m)

Top South Africa Banks TOTAL ASSETS ($bn)

SOUTH AFRICA

RANK IN TOP 200

128.5

1 521.5

2 Standard Bank of South Africa

82.8

809.4

3 Barclays Africa Group

74.2

999.1

4 FirstRand Group

68.7

1 499.8

6 Nedbank Group

60.0

702.5

9 Investec Group*

40.8

446.1

12 Rand Merchant Bank

26.8

381.9

17 First National Bank South Africa

22.7

732.9

47 Development Bank of Southern Africa*

6.1

104.5

66 Capitec Bank

4.1

209.4

2015 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2014 RESULTS

financial performance and despite recent challenges, the major banks have, to date, done exactly that.

Consultancy PwC’s South Africa Major Banks Analysis report, published in March, showed that in the second half of 2015, in aggregate, the major banks reported combined growth in headline earnings of 12.5% to R33.8bn ($2.5bn).

Net interest income growth was 8.4% and non-interest revenue growth was 5.2%. Gross loans and advances grew at 13.5%, driven by corporate and investment banking demand, which has outpacedretailandinstalmentcreditgrowth.

SUPERSTOCK/SIPA

92

A

midrelentlesseconomicpressures and political uncertainty, ratings agencies have downgraded South Africa’s banks’ credit ratings. At the end of May, Moody’s lowered its outlook for the banking system to negative based on its expectation of creditworthiness over the next 12 to 18 months. The government’s sovereign rating may soon fall to junkstatus,whichwouldhaveaknock-on effect on banks and the wider economy through reduced foreign investment and currency weakness.

Nico Smuts, an analyst at 36ONE Asset Management, says that although the growth outlook is muted, all the big banks have been preparing for a tougher environment for some time, “so they should all come out of this cycle looking better than they did after 2008/2009.”

THE JOHANNESBURG STOCK EXCHANGE REFLECTED THE FINANCIAL PRESSURES ON BUSINESSES IN Q1 OF 2016

South Africa’s economy is at a critical juncture. Real gross domestic product (GDP) contracted by 1.2% in the first quarter of 2016, the first year-on-year contraction since 2009. The commodity price slump, drought, currency depreciation, rising unemployment, slower growth in disposable income, higher debt-service costs, low consumer confidence and acute financial pressures on companies and individuals are reflected in bad-debt provisions and impairments, a lack of new business opportunities, higher costs and pressure on margins.

Moody’s argues that the banks will nevertheless show resilience in their

GROWING PRESSURE There are signs of growing pressure though. Credit provisions increased 13.7% and non-performing loans grew 6.8%, while credit impairment charges grew by 10.8%. At the same time, there were upward cost pressures, in part due to dollar-based costs for banks with operations in the rest of Africa. The banks’ combined return on equity was, nevertheless, a comfortable 17.9%.

Banks are responding differently to the slowdown in South Africa. Standard Bank (#1), the country’s largest bank by assets, reported a 35% growth in net income in 2015 to R21.4bn after selling off a 60% stake in its loss-making UK operations to Industrial and Commercial Bank of China. Standard Bank says it will maintain its focus on the many African countries where it operates, despite the economic troubles in countries like Nigeria (see page 84). Expanding further into West Africa, Standard Bank subsidiary Stanbic Bank won an operating licence in Côte d’Ivoire in late July.

Standard is part of an industry trend of using technology to reduce costs and

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TOP 200 BANKS

make banking more convenient for customers. In 2015, it said that just 5% of its transactions were conducted through branches and cashpoints.

FirstRand Group (#4), which owns First National Bank (FNB, #17) and Rand Merchant Bank (#12), is expanding its operations in Britain and will pare back some of its activities at home, with lower loan issuance to come. Responding to a drop in branch activity, FNB says that it will close about 10% of branches and retrench 600 members of staff. FirstRand chief executive Johan Burger said the bank’s Africa expansion would be slowed by the recent drop in activity in many of the continent’s commodity-dependent markets. In its 2015 results, FirstRand reported profits of R11.3bn, representing 1.3% growth over the previous year.

Nedbank (#6) already has a large exposure to other African countries through its 21.8% stake in Togo-based Ecobank Transnational (#15). In its first-half results for 2016, Nedbank reported profit growth of just 2.1% due to losses on its Ecobank investment. Nedbank, too, is streamlining its branch network.

South Africa’s banks are increasingly at the mercy of external factors. In late December, following President Jacob Zuma’s shock firing of finance minister Nhlanhla Nene, the banking index plunged 14% on the Johannesburg Stock Exchange, indicating how susceptible banks are to confidence.

said to be for sale, although perhaps not Up to a few years ago, South African imminently. The failure of banks like banksreceivedinvestmentattentionfrom the likes of Industrial and Commercial African Bank has thrown the spotlight on Bank of China – which bought 20% of South Africa’s microlending sector and is one of a number of reasons authorities Standard Bank in 2007 – and Barclays have been imposing an increasing raft – which accumulated 62.3% of Absa, now held through Barclays Africa (#3). This of regulations on the financial sector. was due to South Africa’s strong financial The mooted ‘twin peaks’ regulation is services base and its entry point into the expected to come into effect at the berest of Africa, rising commodity prices ginning of next year. The sector will be anddisposable income,agrowing middle class and forecasts The promise of growth from of strong GDP growth across expansion and acquisition on the the continent. continent has all but vanished South African banks have been expansive in Africa. regulated by the Reserve Bank and a Standard Bank is now in 20 African countries, Absa bought most of the rest market conduct regulator through the of Barclays’ African network and NedFinancial Services Board. bank owns a large stake in Ecobank.

South African banks may be for sale, but there are few takers and unbundling or placement with institutional investors SELL-OFFS looks increasingly likely. 36ONE Asset But the promise of significant growth Management’s Smuts says the mergers from expansion and acquisition on the and acquisitions outlook for this year continent has all but vanished, and two of South Africa’s biggest banks are up for “is not as exciting as it seemed when sale. In the past few months, Barclays Barclays first announced its intention to announced it will reduce its 62.3% sharesell down its stake in Barclays Africa. The holding in Barclays Africa to less than factors, mostly regulatory, which drove 20%, and has since reduced its stake to its decision also apply to most other de50%. Old Mutual announced it will split veloped market banks. Thus I don’t exup its four business units and in the propect any US or European banks to show cess get rid of Nedbank. an interest in the Barclays Africa stake.

African Bank (#80), which is under A bid from an emerging market bank is control of a number of banks followpossible, but I don’t see it as likely.” ● Marcia Klein in Cape Town ing its business rescue in 2014, is also

PROFILE

Capitec Bank CUSTOMERS KEEP COMING IN THE SPACE OF 15 YEARS, Capitec Bank (#66) has moved in on South Africa’s ‘big four’ banks and now takes the number three spot in terms of client numbers. Capitec, which launched as a microlender in 1998, is using technology to keep costs low and security high. It offers relatively cheap, comprehensible banking and treats customers equally with the same product and fee structures.

This in part explains why Capitec is ranked highest in the South African Customer THE AFRIC A REPORT

●

Satisfaction Index, scoring well ahead of competitors in quality, perceived value, customer loyalty, levels of complaints and complaint resolution.

According to Standard & Poor’s, which says Capitec has become a “serious challenger in the mass and middle market retail banking space”, Capitec had 7.3m active retail clients, or 17.5% market share at end-February, up from 1.5m in 2009.

Based on metrics other than retail clients, it remains dwarfed by the big banks.

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Capitec has focused on its retail business and servicing clients.

This has included making banking accessible, simple and transparent, and more flexible opening hours. It opens a new branch at a rate of one per week and now has over 720.

Its results to end-February reflected a 26% rise in headline earnings to R3.2bn ($239m).

Chief executive Gerrie Fourie said the year saw the largest growth in client numbers since the bank started. It picked up 1m active clients. Economic pressures are reflected in

a 33% increase in provisions for bad and doubtful debts to R5.1bn, or 12.5% of the loan book, and a significant 75% increase in loans rescheduled during the past six months.

Capitec’s ability to sustain its growth levels is the subject of some debate. Nico Smuts, an analyst at 36One Asset Management, says: “Its growth should theoretically tail off as its transactional banking market share starts to plateau, but the planned launch of a credit card product could provide a new source of growth.” ● M.K.

93

TOP 200 BANKS

CAMEROON

M

GRAND THEFT AT BICEC Not all players will benefit in the same way from the increase in liquidity. The Banque Internationale du Cameroun pour l’Épargne et le Crédit (BICEC, #160), a subsidiary of France’s Banque Populaire Caisse d’Epargne, is in turmoil after it was revealed that a group of officials had stolen an estimated 50bn CFA francs between 2003 and 2015 with the complicity of external contractors.

BICEC has admitted that the theft took place, but it has not revealed the amount.

Chief executive Alain Ripert, who took up the post in November 2015, is now plotting a way forward for the bank.

He sacked officials said to be connected to the fraud in May, notably deputy director general Innocent Ondoa Nkou and accounting director Samuel Ngando Mbongue. So far, no one has been tried for their involvement in the theft.

3.3

PROFITS ($m)

BANK NAME

79 Afriland First Group*

The image of the banking sector has been hurt by the BICEC scandal, but a lower capital reserve requirement should strengthen lending and economic activity ostbanksareseekingnewsources of finance and technological innovations, but some have been weakened by financial scandals. Commercial banks face many challenges, and with about 20% of the population holding bank accounts, the sector has a long way to go to reach the bank penetration levels of the region’s larger economies.

Analysts predict a difficult year ahead, but the April decision of the Banque des Etats de l’Afrique Centrale – the regional central bank for Central African countries with the CFA franc currency – to reduce required capital reserve deposits by 50% could soon lead to a boost in lending. The Association Professionnelle des EtablissementsdeCréditduCameroun(APECCAM) estimates that the decision will result in a 200bnCFAfranc($343m)capitalinjection into the Cameroonian economy.

TOTAL ASSETS ($bn)

RANK IN TOP 200

Top Cameroon Banks

LOOKING FORWARD TO MORE LIQUIDITY

9.4

152 Afriland First Bank

1.3

3.7

155 Société Générale Cameroun

1.3

14.4

160 BICEC

1.2

7.5

193 Ecobank Cameroon

0.9

10.7

197 Société Commerciale de Banque Cameroun

0.8

17.2

(265) Crédit Foncier du Cameroun*

0.5

1.2

(271) United Bank for Africa Cameroon

0.5

6.1

(296) BGFIBank Cameroon

0.4

6.0

2015 RESULTS FROM TOP 200 BANKS RANKING; * IN ITALICS 2014 RESULTS

Due to the impact of the scandal, BICEC dropped its prediction for its 2015 profits from 12bn CFA francs to 4.5bn. Economics professor and banking consultant Robert Tangakou says the outlook for the sector in 2016 is poor because of the BICEC troubles.

He explains: “The image of the sector is weakened, with a loss in profitability on the global level.”

BICEC is not the only Cameroonian bank with serious problems. The state took over the management of Commercial Bank Cameroon in 2009 due to corruption investigations into its main shareholder, Yves Michel Fotso.

In April 2016, Fotso was sentenced to life in prison in a case related to grand corruption during his tenure as boss of the national airline, Camair. The state has been extremely slow in winding up its interest in the bank and only appointed a new management team for Commercial Bank in May of this year.

The bank is no longer in provisional administration, and the government could soon look to offload its 98% stake in the bank. With low levels of investor interest in other banks owned by Fotso in Central Africa that suffered a similar fate, Commercial Bank of Cameroon ●●● may not find many suitors.

Cameroon's biggest banks in terms of deposits Afriland First Group

Banque Internationale pour l'Épargne et le Crédit

$2.248bn

Ecobank Cameroon

$0.734bn

$0.961bn

Société Générale Cameroun

Société Commerciale de Banque Cameroun

$1.016bn

$0.577bn Afriland First Bank

United Bank for Africa Cameroon

$1.010bn

$0.382bn SOURCE: TAR RESEARCH

94

TOTAL $7.2bn

BGFIBank Cameroon $0.264bn Crédit Foncier du Cameroun $0.04bn

Rank 79

155

152

160

193

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Algeria 550 DA • Angola 600 Kwanza • Austria 4.90 € • Belgium 4.90 € • Canada 6.95 CAN$ • Denmark 60 DK • Ethiopia 75 Birr • France 4.90 € Germany 4.90 € • Ghana 7 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 40 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 12,000 • South Africa 35 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 9,000 shillings Tunisia 5.4 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zambia 30 ZMW • Zimbabwe US$ 4 • CFA Countries 3,000 F CFA

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From left to right: Gavin Dalgleish, MD of SA agribusiness ILLOVO Ismaïl Douiri, Co-CEO ATTIJARIWAFA Bank Ade Ayeyemi, Group CEO ECOBANK Tabitha Karanja, Kenyan CEO of Keroche Breweries

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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 8 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 40 DH • Netherlands 4.90 € • Nigeria 600 naira Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 12,000 • South Africa 35 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS• Tanzania 9,000 shillings Tunisia 5.4 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zambia 30 ZMW • Zimbabwe US$ 4 • CFA Countries 3,000 F CFA

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 8 GH¢ • Italy 4.90 € • Kenya 410 shillings • Liberia $LD 300 • Morocco 40 DH • Netherlands 4.90 € • Nigeria 600 naira • Norway 60 NK • Portugal 4.90 € • Sierra Leone LE 12,000 • South Africa 40 rand (tax incl.) • Spain 4.90 € • Switzerland 9.90 FS • Tanzania 9,000 shillings Tunisia 5.4 DT • Uganda 9,000 shillings • UK £ 4.50 • United States US$ 6.95 • Zambia 30 ZMW • Zimbabwe US$ 4 • CFA Countries 3,000 F CFA

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TOP 200 BANKS

PROFILE

Afriland First Bank LEADER WHO LENDS TO THE LITTLE GUY FOUNDED IN 1987 by businessman Paul Fokam Kammogne, Afriland First Bank (#152) is Cameroon’s biggest bank in terms of assets and has a capital base of 15.8bn CFA francs ($27m).

It started as Caisse Commune d’Epargne et d’Investissement, a small financial institution. It grew and for many years has been the largest bank in the country, controlling more than 20% of the market. In 2015, it had deposits of $1.3bn.

In Africa, Afriland First Group (#79) – Afriland First Bank’s parent company – is present in 10 countries, including Cameroon, Republic of Congo, the Democratic Republic of Congo, Equatorial Guinea, Guinea, Liberia, São Tomé, South Sudan and Zambia.

Afriland’s Equatorial

Guinean subsidiary, CCEI Bank GE (#148), launched a banking unit in Benin in September 2015. Afriland also has representative offices in France and China, and the group set up its headquarters in Switzerland in 2009.

Alphonse Nafack, who became CEO of Afriland First Bank in 2012, is also president of Cameroon’s banking association, APECCAM. He replaced Alamine Ousmane Mey, who became Cameroon’s finance minister.

Afriland has 38 branches in Cameroon, and its activities are largely focused on small and medium-sized enterprises (SMEs).

In 2014, of 6,946 clients with outstanding loans some 94% were SMEs. Afriland’s success has come in part through

Despite BICEC’s difficulties, there are not likely to be any major changes atop the Cameroonian banking leader board. Afriland First Bank (#152), Société Générale Cameroun (#155) and BICEC are the largest banks and control more than 50% of the market.

Banking leader Afriland raised 15bn CFA francs in June in order to fund its growth, which will include new branches. Like its competitors, Afriland does not publish annual reports regularly. Its latest one is from 2013.

Afriland has its sights on mobile banking and in September 2015 signed a deal with South African mobile operator MTN. They launched the Mobile Account Connected platform to allow MTN Mobile Money and Afriland customers to conduct limited banking operations between their accounts through ●●●

its willingness to work with clients who have small amounts of money and to seek out new customers in underserved communities. The bank provides support to 104 microfinance institutions that are part of the Mutuelles Communautaires de Croissance network.

Afriland’s founder is one of Cameroon’s most vocal business leaders. Fokam set up a university centre in Yaoundé in 2010 – PKFokam Institute of Excellence – to train a new generation of African leaders. It offers degrees in computer science, business administration and management. In June, Fokam announced a new science and technology prize to encourage research and innovation in Cameroon. ● R.K.

smartphones. In July of the same year, Ecobank Cameroon (#193) and French mobile operator Orange launched a similar product. Cameroonian mobile network operators are having success with the mobile-money platforms, as users prefer them to brick-and-mortar transfer operations.

Société Générale Cameroun is the second-largest Cameroonian bank by assets but has the country’s largest loan book. In May, Proparco – a unit of the Agence Française de Développment that works with the private sector – provided the bank with a €20m ($22.5m) credit line to lend to local businesses. In a bid to extend its reach, Société Générale signed a partnership deal in April with local money-transfer outfit Express Union.

The bank has just 32 branches in the country and will use Express Union’s 680

outlets as points of contact for transferring and withdrawing money.

In the light of its current difficulties, BICEC is trying to attract new clients. This year it launched a new lending product that targets civil servants and employees in the private sector. BICEC provides loans of up to two months’ salary over a six-month period. Proparco has also lent BICEC €40m to expand its lending.

ISLAMIC BANKING The managers at Ecobank Cameroon are keen to hear the point of view of their customers and have organised a series of client forums this year to highlight new productsandtounderstandthedemands of the market. As a result of these talks, Ecobank launched a sharia-compliant Islamic savings account in February.

Afriland was the first local bank to offer Islamic banking services, with its savings account launch in February 2015.

Private companies – of which 95% are small and medium-sized enterprises – often have difficulty getting loans from Cameroon’s commercial banks. Those that are able to get finance are often unable to do so over the long term. As of 31 December 2014, just 1.2% of bank loans were long-term. Banks complain about a lack of long-term deposits and the high number of clients who do not pay back their debts.

The latter problem is now being addressed. Alphonse Nafack, APECCAM’s president, explains: “An asymmetry of information allowed certain people to take out large loans throughout the [banking] system and to disappear without trace.” To overcome this weakness, on 23 June, the Conseil National du Crédit created an information technology platform on banking and financial risks. When fully operational, it will give banks access to reliable background information and signature verification of people wishing to take out loans.

Meanwhile, the banking penetration rate remains low. The Commission Bancaire de l’Afrique Centrale estimates that there is one branch for every 149,000 people in Cameroon. Microfinance institutions continue to spring up to meet the demand for financial services, and there are currently more than 400 of them. But supervision of this segment of the market remains weak, and many microfinance institutions have short lifespans. This is something that the authorities are now seeking to address. ●

THE AFRIC A REPORT

Reinnier Kazé in Yaoundé ●

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LAST WORD

BY RAFIQ RAJI

Africa is not a country

T

here is a lot of gloom in African markets right now and it could linger for some time. Even if the underpinning structural issues were doggedly tackled, reforms take time to bear fruit. That is, if their momentum is not stalled or stymied. Even so, experienced investors say in unison: look at each African country on its own merits.

Recession fears are rife in Nigeria and South Africa and they are not unfounded. Despite this, the medium-term prospects for these countries remain robust, with growth expected to pick up from 2017 onwards. Also, East African countries – Kenya, Tanzania, Rwanda and Ethiopia – are expected to do relatively well, helped by better business climates and faster regional integration.

There are myriad reasons why the two African giants – Nigeria and South Africa – are sluggish. You might be tempted to blame external factors: lower commodity prices, the tightening of interest rates in the US, Brexit, etc. They pale in comparison to the domestic structural issues. The weather has also not been kind to agriculture, in South Africa at least. Imports to fill the supply gap have been weighed down by a cheap and volatile rand. High inflation expectations consequently have forced the hand of the central bank, tightening policy even as it tries to support growth. Then there are the politics: South African local elections in August were fiercely contested, as the ruling party tried to salvage its dwindling popularity.

Up north, Nigeria virtually shot itself in the foot. This year’s budget was not signed into law until the second quarter. With the government the dominant spender, almost everything ground to a halt. Fiscal reforms, though positive – authorities now operate a single treasury account – have been devastating for Nigerian banks, which depended a great deal on public sector deposits. An illiquid naira market caused banks to fall short on their foreign obligations.

Cracks have emerged. In July, the central bank sacked the management of a systemically important bank, triggering rumours about the health of other banks. As it turned out, most Nigerian banks were not really engaging in banking. Some may actually term what they did as fraud: they collected public sector funds as deposits at ridiculously low rates and then issued loans from the

same funds to the same government entities at sometimes quadruple the deposit rates, earning significant spreads that were virtually risk-free.

And those were the sane ones.

In any case, most business lending went to firms in the petroleum sector, which are now suffering from lower crude oil prices. The most exposed banks are believed to be extremely vulnerable and may breach capital requirements on a sustained basis. A top-five bank is likely to be one of them.

Thus, short of the government’s ‘bad bank’ taking up these delinquencies, there could be a financial crisis.

East African banks have had similar problems. Kenyan banks were simply reckless, taking advantage of lax supervision by the central bank. Under new management, the central bank has become more proactive; albeit slow and ill-prepared at first. Some big Kenyan banks have announced significant provisions for bad loans. Even so, the Kenyan economy is expected to do well in the medium term. There have been issues nonetheless. As tourism was beginning to recover, security threats re-emerged.

Amid all this gloom then, why should anyone think that Africa is still worth the trouble? The long-term outlook remains decent. Primary industries need to be forward-integrated. Prohibitively expensive imports, owing to cheaper local currencies, are improving domestic manufacturing prospects.

Reforms are ongoing. Furthermore, African democracies have proved surprisingly resilient. A more engaged citizenry – through the use of social media especially – is beginning to hold its political leadership to account. Good governance may still be slow to materialise, but prospects are better now.

Africa’s excellent demographics, strong demand and cheap labour are hard to refute. Of course, there are risks. But then you ask: how do these risks compare to those weighing down so-called advanced economies? They are more or less balanced. So, get out there. Open your eyes. And yes, watch your backs. ●

Of course there are risks.

But then you ask: how do these risks compare to those weighing down the so-called advanced economies?

Rafiq Raji is the managing director of Macroafricaintel Investment, an Africa-focused macro-investment consultancy based in Lagos.

He blogs at rafiqraji.com THE AFRIC A REPORT

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