Doing business in Africa
Neil Surgey and Hasan Khan are very passionate about Africa and the rapidly growing economic opportunities that it presents for companies around the world.
“Africa has caught the imagination of investors and corporates around the world,” says Mr Surgey, head of transactional products and services (TPS) at Standard Bank. “Despite the recent sell off in emerging markets, multinational corporates still want to have an interest in the continent.” According to the IMF, sub-Saharan Africa’s economic growth remains strong and should accelerate to 5.8 per cent this year.
But Mr Khan, head of TPS in Africa and head of sales for TPS at Standard Bank, which has been working on the continent for more than 150 years, is very aware that after the 2008 financial crash, and with the current unstable global political and economic outlook, risk management is very much top of mind for the corporate treasurers of companies looking to do business with fast-growing African economies.
The continent’s economy is diverse and complex, as are its politics. “People now want a bank that is not just a service provider, but a partner – a trusted adviser,” he says. “Companies operating in or expanding into Africa are increasingly looking for a bank with the legitimacy and track record of operating in African markets.”
He points to trade finance. “What you need when you have a maturing trade obligation is a commitment from the bank to say they will make the payment. The challenge that countries such as Nigeria and Angola are currently facing is a lack of foreign currency in the market. That’s not something that you, as a corporate treasurer, want to deal with on a day-to-day basis. You need someone who knows the system locally and can handle it and manage the risks for you,” he says.
The banking reforms introduced post-2008, although aimed at reducing risk globally, are being implemented throughout Africa at varying speeds and have created new complications that foreign companies have to navigate.
Having a bank with a strong presence on the ground brings huge competitive advantages and helps manage risk, as a growing number of corporates are discovering
Working with a bank that is deeply rooted in the continent is vital, Mr Surgey believes. “Most of the countries have adopted Basel III, but are at different stages of implementation. Also, a lot of countries have exchange controls, so it’s not a simple matter of being able to sweep and pool into a consolidated account. Getting 100 per cent visibility of your currencies and cash position in all countries that you’re in is not as simple as when you’re dealing with Europe,” he explains.
This is where having a bank with a strong presence on the ground brings huge competitive advantages and helps manage risk, as a growing number of corporates are discovering. “As well as the ability to operate in multiple markets each of which are very different and therefore carry their own risks, our clients like the fact we can also offer them a regional perspective. That gives the operating consistency you wouldn’t get from six different banks in ten different markets. This means we can compete regionally as well as domestically with large local banks,” says Mr Surgey.
Payable and receivables management is one of the biggest areas of risk to be managed. “If you’re a corporate treasurer, you’re thinking about three distinct areas of operation – receivables, managing liquidity and payments,” says Mr Khan. “Having the geographic reach to collect and pay is incredibly important for companies working in Africa.”
The continent is still quite a way off sweeping multiple markets into a single currency, he points out. Adding to the complexity is the great diversity between payment and transaction facilities between countries. “We’ve seen M-Pesa, the electronic payments system, take off in Kenya, but there’s also a strong bricks and mortar presence there. Companies often have to select from a myriad of options to get an optimum working capital model,” he says.
But it’s not just about being firmly rooted in countries and regions across Africa, says Mr Khan. Corporate treasurers from global companies need a banking partner on the continent that also has an international perspective. It’s for this reason that Standard Bank has established five Origination Centres in London, New York, Dubai, Hong Kong and Beijing.
“They integrate our clients from outside Africa,” explains Mr Khan. “It’s sometimes difficult to understand business culture in Lagos if you’re based in Mombasa, but try to do that if you’re thousands of miles away in Beijing.
“We’ve had a number of multinational clients expressing an interest in operating in Africa for years. Their home bases are in very diverse countries and they don’t want to open bank accounts in 12 countries across Africa, so our Origination Centres act as strategic corridors where our investment bankers, corporate coverage people and product specialists can help these companies link into our Africa proposition. They find that this seamlessness and access to our experts also reduces risk. The process is a two-way street, facilitating exports from Africa as well as imports.”
A factor that often doesn’t get talked about is people, says Mr Surgey. “With the economic expansion in all these areas, there is a paucity of talent, which is further complicated by the difficulty in getting expatriates into these markets. Corporate treasurers have to think very carefully about where their next in-country treasurer will come from. Finding someone with the right knowledge, experience and cultural understanding helps to manage the risk, so clients find Standard Bank’s network of experienced people on the ground in its 1,200 branches invaluable,” he says.
As the economy of the continent evolves, the nature of trade is changing, bringing with it new challenges. “What is surprising is the low level of intra-Africa trade,” says Mr Surgey. “The World Bank estimates it at approximately 15 per cent, while according to SWIFT, the payments system, it’s about 23 per cent. Predominantly, Africa has exported raw materials overseas with relatively little internal manufacture, but now that’s starting to change. Governments are trying to make trade easier by putting into place pan-African payment systems, which are themselves moving towards smaller denominated payments.”
It’s another exciting development in this dynamic, emerging economy with all its variables and idiosyncrasies which requires risk management from a banking partner that has knowledge, influence and a long-standing presence on the ground as well as a global reach.