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Africa: risk and return

Africa is fast becoming one of the world’s most exciting growth stories. The International Monetary Fund predicts the continent will grow by around 6 per cent this year and next, while four of The Economist Intelligence Unit’s top-ten forecasted growth countries over the next few years are also African. Nigeria’s GDP, in particular, could increase by more than 800 per cent to more than $4.5trillion by 2050, according to ratings agency Moody’s.

General Electric recently announced that it aims to double sales in sub-Saharan Africa and GlaxoSmithKline has unveiled plans to invest $216 million over five years. The European Union’s trade with Africa was more than $300 billion in 2012, making it one of the continent’s largest trading partners. However, the BRICS countries – Brazil, Russia, India, China and South Africa – are leading the way, with China’s business alone worth around $200 billion that year.

Two key reasons for Africa’s strong growth are the slowing of Asian markets and the demand for raw materials among the emerging economies, especially China. Another interesting development is the growth of trade within Africa itself. Exports by African countries to their peers have surged by 32 per cent since the 2008 economic downturn, thanks in part to the growth of a burgeoning middle class.

But as they look to do business in Africa, a growing number of corporate treasurers are beginning to realise that partnering with a bank which has a local presence is essential to provide the necessary knowledge in a continent that is so diverse and changing so rapidly. The trend of having a global provider and using a correspondent bank has not been successful; the trend has moved to regional banking partners, especially in the emerging markets.

 A growing number of corporate treasurers are beginning to realise that partnering with a bank which has a local presence is essential to provide the necessary knowledge in a continent that is so diverse and changing so rapidly

“Africa offers huge potential for investment, which is why we are seeing increasing interest from corporates who are setting up offices across the continent,” says Neil Surgey, head of transactional products and services (TPS), at Standard Bank, Africa’s largest banking group (by assets and earnings). “However, doing business in Africa presents its own challenges as banking markets throughout the continent are in different stages of evolution.”

Mr Surgey points to challenges, such as restrictive exchange control regimes, which are prevalent in African countries because of the need to protect their relatively small foreign exchange reserves against volatility. “Sometimes repatriation of funds from African countries to foreign shores, although permissible, can’t be honoured because of shortages in foreign exchange reserves,” he explains.

Hasan Khan, head of sales and head of Africa for Standard Bank’s TPS business, adds: “Companies operating in Africa contend with a variety of challenges. These range from systems integration to competing for talent. Adding to the complexity is the changing regulatory landscape, exchange controls and competing programmes between domestic and regional payments systems.

“Africa offers great opportunities for companies, but it’s essential to partner with a bank that has a strong geographical footprint and strategic insight into the operating environments.”

These are some of the challenges that Standard Bank Group has been able to help an increasing number of companies to handle, thanks to its experience and strong presence on the ground with more than 1,200 branches.

For instance, the bank is involved in national and regional payments system reform initiatives in many countries, including the implementation of payments across the Southern African Development Community (SADC) and the East African Community.

It’s also consulting on payments system regulation, as well as being part of working groups to implement real-time gross settlement systems. The drive to move payment volumes from physical systems, such as cheque and cash, into electronic media, including electronic funds transfer, card and mobile, is another project the bank is closely involved with.

With more than 50 per cent of global mobile money deployments taking place in Africa, this is one sector where the continent is leading the rest of the world. “We’re partnering with some of Africa’s leading telecommunications companies to provide payments and collections solutions to individuals who may not have access to ordinary bank branches,” says Mr Khan. “We’ve seen a significant growth in payments through mobile wallets in Kenya and Nigeria in 2013.”

According to Standard Bank Group, companies looking to work in Africa need to understand how it differs from other markets. “They should think about having mini-hubs across the continent to control the various operations leveraging the respective regional trade blocs, such as the SADC,” says Mr Surgey.

Organisations wishing to benefit from Africa’s rapidly expanding economy are choosing Standard Bank Group because of its impressive track record of specialist transactions in the advisory, funding and transactional banking space across the continent.

In addition to specialised teams in each of the markets where it operates, the bank has offices in the major global financial centres of New York, London, Beijing and Hong Kong, putting it in the cities that are close to international decision-makers.

“We’re walking the talk,” explains Mr Surgey. “Our focus on corporate and investment banking in Africa has brought about a dramatic change in our own balance of revenues.

“With many international banks having reviewed their risk appetite and subsequently withdrawing from, or limiting their exposure to, trade finance in Africa, we’re well positioned to take advantage of this opportunity.”