Publication (51.91 MB)

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COUNTRY FOCUS:MOZAMBIQUEDeveloping ambitions

pg. 24

WHO NEEDS DIASPORA BANKING?How can Diaspora Bankingchange remittance patterns? pg. 28

SUSTAINABLE BANKINGThe selling points of sustainability pg. 42

M&A FOCUSExpert insight on Q1 M&A and the year ahead

BankerBanker

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Dubai Technology and Media Free Zone Authority

ISSUE 011 www.cpifinancial.net

AFRICAAFRICA

PLUS:

SETTING A NEW STANDARDSETTING A NEW STANDARDSim Tshabalala of Standard Bank GroupSim Tshabalala of Standard Bank Group

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FEATURES

COVER INTERVIEW

10 Setting a new standard SimTshabalalaofStandardBankGroup

COUNTRY REPORT: MOZAMBIQUE

18 Developing ambitions AsMozambique’senergysectorcontinuestoboom,infrastructure

andfinancialservicesareplayingcatchupandtheGovernmenthassetitssightsonestablishingadevelopmentbank

21 Moza Banco rising Thenearlysix-yearoldMozimbicanbank’sfootprintisgrowing

DIASPORA

24 Who needs Diaspora Banking? Withglobal“supertaxes”onremittancestoAfrica,howcould

DiasporaBankingchangethemarket?

INVESTMENT

32 Nigerian Finance Minister named one of TIME’s 100 most influential people

Dr.NgoziOkonjo-IwealarecognisedbyTIMEmagazine

M&A FOCUS

40 Quiet quarter for M&A ThomsonReuters’quarterlydatashowsQ1M&AvalueinSub

SaharanAfricawasdown56percentcomparedtoQ12013

42 M&A and investment grow with the middle class KPMG’sVikasPapriwalandMergermarket’sVinjeruMkandawire

sharetheirthoughtsonM&Athisyear

AWARDS

46 And the winners are… Theresultsareinforthe2014EastAfricaBankingAwards

EDITOR’S LETTER

BankerBanker




ISSUE 009

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AFRICAAFRICA

p. 14

COUNTRY REPORT

Tunisia: the brink of change

p. 20

WHAT DOES BASEL III DO FOR AFRICA?

How the global banking regulation could hit Africa

p. 34

GETTING EVERYONE INVOLVED

Closing the financial gap through tech

p. 38

RISKY BUSINESS

A look at the hazards ahead

PLUS:

NEW INTOWNNEW INTOWNJapan raises the stakes for

African investmentJapan raises the stakes for

African investment

Hello readers,

A s features took form and interviews came together, this issue shaped up to be largely focused on best practice policies — a subject, I’m well aware, that most people would consider pretty dry.

Investopedia defines best practice as “a set of guidelines, ethics or ideas that represent the most efficient or prudent course of action”. The persistent dilemma of banks — to marry efficiency with prudent decision-making — has come into even sharper focus following the global financial crisis. Though “best practice” might be considered a business buzzword, the weight it carries in the post-crisis world of re-regulation and general distrust of banking institutions is particularly heavy.

“In South Africa, banks are under political, regulatory and social pressure to define themselves more sharply and successfully as socially and economically valuable, and to earn and defend their value to their customers and to society in general,” Sim Tshabalala, Joint CEO of Standard Bank Group, said in our cover interview (p. 10).

Besides increased pressure from regulatory and government bodies, banks globally are looking at raised consumer expectations for social and ethical practices. In Africa specifically, the pressing need for banks to play a part in community development has only mounted. “There is probably no other region in the world where good environmental and social [E&S] risk management and making use of sustainable banking opportunities is more important to the economic and social development than Africa,” said Sandra Abiola of the International Finance Corporation when asked to elaborate on sustainable banking (p. 28).

This issue takes a long look at what different best practice approaches can mean for banks, businesses (“All in the Family,” p. 38) and government engagement (“Budget Portal,” p. 34). On top of that, you’ll find expert commentary on M&A and investment this quarter (p. 42) and new insight into massive remittance flow into Africa (p. 24) to round out this month’s take on the continent’s banking industry.

Until next time,

Sarah Owermohle

CONSUMER CONFIDENCEBank of Khartoum Head of Retail, SME and Microfinance Kashif Naeem

ECOBANK’S TOP-LEVEL TRANSITIONAccountability a priorityfollowing CEO’s dismissal

PLUGGING THE LEAKNigeria’s Central Bank making waves with foreign investors

EAST AFRICA FOCUSKey insights from experts in the region

pg. 22

CONSUMER CONFIDENCEBank of Khartoum Head of Retail, SME and Microfinance Kashif Naeem

pg. 28

ECOBANK’S TOP-LEVEL TRANSITIONAccountability a priorityfollowing CEO’s dismissal pg. 30

PLUGGING THE LEAKNigeria’s Central Bank making waves with foreign investors pg. 40

EAST AFRICA FOCUSKey insights from experts in the region

BankerBanker




ISSUE 010 www.cpifinancial.net

AFRICAAFRICA

PLUS:

National Bank of Rwanda Governor John RwangombwaNational Bank of Rwanda Governor John Rwangombwa

IS RWANDA EASTAFRICA’SNEXT FINANCIAL HUB?IS RWANDA EASTAFRICA’SNEXT FINANCIAL HUB?

pg. 18COUNTRY FOCUS:MOZAMBIQUEDeveloping ambitions

pg. 24WHO NEEDS DIASPORA BANKING?How can Diaspora Bankingchange remittance patterns?

pg. 28SUSTAINABLE BANKINGThe selling points of sustainability

pg. 42M&A FOCUSExpert insight on Q1 M&A and the year ahead

BankerBanker




ISSUE 011


AFRICAAFRICAPLUS:

SETTING A NEW STANDARDSETTING A NEW STANDARDSim Tshabalala of Standard Bank GroupSim Tshabalala of Standard Bank Group

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BRIEFS

6 Essential financial news from around the continent

BEST PRACTICE

28 The selling points of sustainable banking Sustainability is often the buzzword to drop when it comes to brand

reputation, yet in africa sustainable banking and investment carries significant weight for bank strategy

GOVERNANCE

34 Budget Portal opening door for development the World bank’s Massimo Mastruzzi, Senior economist, and robert

hunja, Manager of Open Government Practice, discuss the impact of true transparency in government spending

38 All in the family tunisia’s ‘crony capitalism’ under President Zine el abidine ben ali still has

lingering effects on economy as well as leasing companies’ performance

SPECIAL BANKING REPORT

48 Budding optimism in Mali the latest afrobarometer report indicates newfound hope and potential for

growth in the wake of national crisis, while aid groups renew commitment to development

OPINION

50 The coming boom in investment banking banker africa’s robin amlôt shares why investment banking is about to

pick up in africa


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© 2013 Citigroup Inc. All rights reserved. Citi and Citi with Arc Design are registered service marks of Citigroup Inc.

Connecting African businessto new worlds of opportunityfor 100 years and counting.

Financing corporations with ambitions for regional expansion.

Facilitating landmark transactions enabling national institutions to

fund international projects. Supporting governments building the

foundations for economic prosperity. This is what brought us to Africa.

And what will keep us committed to working for Africa.

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T he Dubai Multi Commodities Centre (DMCC) recently held its third annual Dubai Precious Metals Conference (DPMC)

under the theme “Engaging with Africa,” weeks after allegations of trading in conflict gold were printed in the British press.

Kaloti Group, a DMCC-located gold refinery, came under fire earlier in the year for purchasing African gold from 1,000 customers who “walked in off the street with no paperwork,” according to The Guardian. While there is no direct evidence that they accepted gold from warlords or conflict regions, Kaloti and DMCC were accused of violating or ignoring a number of international guidelines.

Gautam Sashittal, CEO of the DMCC, took the opportunity to address the ongoing investigation at the start of DPMC. “In response to the recent unfound allegations, we would like to reiterate that we have followed the procedures and processes. Nothing was wrong and we stand by everything we did. Having said that, because there have been allegations made which are in our view unfounded, we wanted to take that extra step,” he said, outlining plans for an independent investigation by the DMCC.

“Dubai has always engaged with Africa for centuries. We want to take the engagement to the next level in line with the changing requirements of the business environment,” Ahmed bin Sulayem, Executive Chairman of the DMCC, said.

DMCC “Engaging with Africa” and refuting conflict gold trade claims Obaid Humaid Al Tayer, Minister of State for Financial Affairs of

the UAE, recently received Badr El-Din Mahmoud Abbas, Minister of Finance and National Economy of the Republic of Sudan, and

Ahmed Al Siddiq Abdul Hai, Ambassador of Sudan to the UAE, in the presence of a number of officials from both parties.

The visit in Abu Dhabi focused on cooperation between the UAE and Sudan in intra-regional business investments as well as strategies for capitalising on prior agreements between the two countries, including a 2000 agreement for reciprocal protection of investments and a 2011 treaty to establish a free trade area.

Strengthened ties between Sudan and the UAE

Major Pension Fund investment in South Africa housing

T he Eskom Pension and Provident Fund has committed $9.4 million to the development of around 20,000 new affordable homes in South Africa through an investment in global private equity funder

International Housing Solutions. The investment follows the commitment of more than half a billion rand to International Housing Solution’s second fund by the National Housing Finance Corporation (NHFC) and IFC, a member of the World Bank. The Eskom Pension and Provident Fund’s investment is into IHS Fund II, launched last year in the wake of the 2006 SA Workforce Housing Fund (SAWHF) that raised $230 million.

Badr El-Din Mahmoud Abbas of Sudan (L) and Obaid Humaid Al Tayer of the UAE

Ahmed Bin Sulayem, Executive Chairman, DMCC

T he Bank of Industry (BOI) has appointed Waheed A Olagunju as Acting Managing Director and CEO, following the expiration of former CEO Evelyn Oputu’s eight-year tenure. Prior to his appointment, Olagunju

served on BOI’s Board of Directors as Executive Director of Business Development and was the Company Secretary of BOI for nearly 16 years. Under Oputu’s tenure, BOI saw increased involvement in national development, including the management of 25 initiatives on behalf of federal and state governments, private sector entities, foreign agencies and international organisations.

Acting CEO appointed for Nigeria’s Bank of Industry

page 6-8 briefs.indd 6 5/5/14 10:19 AM


T he Islamic Development Bank (IDB) and Dangote Group will partner to boost job creation in

Africa following a visit by Aliko Dangote, President and CEO of Dangote Group, to the headquarters of IDB in Jeddah.

Dangote, who heads one of the largest cement plants in the world with an estimated capacity of 13.25 metric tonnes per annum, reportedly told the President of IDB, Ahmand Mohamed Ali, that the aim of his visit was to reconnect with IDB, from whom he once took a loan through its financing arm, the International Islamic Trade Finance Corporation (ITFC). Dangote stated that he will invest $1.2 billion in his Foundation to work in various sectors such as education, health and job creation in Africa and other parts of the world.

Dangote Group and IDB partner to boost jobs

cont. on pg8

Rockefeller Foundation grants $3.8 million to Ghana ICT growth

T he Rockefeller Foundation announced a $3.8 million grant to the Ghanaian Government in partnership with the World Bank to support the establishment of competitive ICT facilities. The grant complements the World Bank’s $5 million

provided under the eGhana Project and is part of the Foundation’s Digital Jobs Africa initiative launched in 2013, a $100 million initiative to improve one million lives through ICT skills and jobs for high potential but disadvantaged youth.

As a result of the grant, a new mini ICT Park to be located in central Accra will be completed by August of this year and is expected to provide direct and indirect employment to over 10,000 people, primarily youth.

MasterCard and KCB launch new cards in Kenya

Travel Insurance going mobile in Gabon

MasterCard and Kenya Commercial Bank (KCB) have partnered to launch

five million Europay, MasterCard, Visa (EMVCo) prepaid, debit and credit cards in Kenya over the next five years. EMVCO cards, developed to specific requirements by the three companies, have chip-enabled technology offering fast and secure transactions. MasterCard says they will be issued first into the Kenyan market and then extended into East Africa.

MAPFRE Assistance recently signed a cooperation agreement with Airtel Money to market its travel insurance in Gabon. The reinsurance company will offer policies even to mobiles without internet access via USSD (Unstructured Supplementary Service Data).

MAPFRE, a leader in Spanish-speaking markets, is looking to further expand its operations in Africa. Airtel Money currently has a portfolio of 28 million registered users.

Aliko Dangote, President and CEO of Dangote Group

South African banks’ satisfaction score declines

A ccording to a survey conducted during the fourth quarter of 2013 by the South African Customer Satisfaction

Index (SAcsi), customer satisfaction amongst South African banking consumers declined by 2.6 per cent compared to last year’s rating.

The SAcsi surveyed 7,796 randomly selected customers of Absa, Capitec, FNB, Standard Bank and Nedbank. Capitec set this year’s overall banking benchmark at 81.5 out of 100. Its customer satisfaction score increased by a statistically significant 3.2 per cent on the 2012 rating and was 7.8 per cent above the industry average. FNB followed at 79.5 out of 100, 5.1 per cent above the industry average. All the other banks’ satisfaction scores were below industry par according to SAcsi.


n FOR UP TO THE MINUTE NEWS AND ANALYSIS LOG ON TO: http://www.cpifinancial.net

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cont. from pg7

T he Lake Turkana Wind Power Project (LTWP), meant to add 300MW of low-cost wind energy to the national

grid of Kenya, reached a milestone following LTWP’s signing of a 20-year Power Purchase Agreement with the Government of Kenya through its electricity entity, Kenya Power. The Turkana project is the first of its kind in East Africa and could likely be the biggest clean energy project on the continent.

The project’s debt raising is led by the AfDB, as mandated lead arranger, the

Largest private investment into Kenya finalised in $870 million financing agreements

(Finnfund), Industrial Fund for Developing Countries (IFU), Wind Power A.S. (Vestas), Norwegian Investment Fund for Developing Countries (Norfund), and Sandpiper as investors. Aldwych will also oversee construction and operations of the project on behalf of LTWP.

Standard Chartered launches its first African Islamic bank

S tandard Chartered Bank launched its global Islamic banking offering, Saadiq, in Kenya this March in its first foray into Islamic banking on the African continent.

Speaking at the launch, Afaq Khan, Standard Chartered Bank CEO of Islamic Banking, said that Africa is the next frontier for the Islamic Banking sector. “We feel that for Islamic banking to grow, we also need to be here for our customers. If the Islamic market starts growing in Africa at the level it is growing globally today, it will become a significant part of the financial system in this region as well.”

Global figures indicate that the Islamic finance market is now worth over $1 trillion. Locally, the Islamic banking industry has grown in under five years to account for two per cent of the total banking business in Kenya.

S&P’s Nigeria Ratings on watch following Government appeal

New Engota Investment Fund to acquire assets in Nigerian oil market

S tandard & Poor’s was scheduled to publish a credit rating action on Nigeria in late March, but following an appeal request from the

Nigerian Government it has agreed to considered the appeal and postpone the publication. As a result, the ratings group placed its long-term sovereign credit ratings of Nigeria on CreditWatch with negative implications.

E ngota’s new investment fund will begin working internationally within the finance industry to build a portfolio of oil exploration and production assets in the Nigerian market. The Engota Fund says it will also seek opportunities

for funding Nigerian exploration and production companies.Engota LLC, a provider of technology, information and private company services

to the global oil and gas market, has said that as an indigenous Nigerian operator the Fund will target additional opportunities that overseas companies may not have access to and will pursue control of targeted Oil Prospecting Licenses and Oil Mining Licenses.

Citadel Capital divests Sudanese Egyptian Bank

E gypt-based investment company Citadel Capital has exited its full 66.12 per cent stake in Sudanese Egyptian Bank (SEB) in a $22 million sale to the Islamic Solidarity Bank of Sudan.

“Having helped grow it from a small, trade-focused bank into a full-fledged Islamic financial institution, we are delighted to have exited our investment in Sudanese Egyptian Bank and placed it with a strategic parent with the capacity to take it to the next level,” said Citadel Capital Chairman and Founder Ahmed Heikal. Originally established to facilitate trade between Egypt and Sudan, SEB is a full-service, Shari’ah-compliant bank with a diverse portfolio of corporate and individual clients. Sudanese Egyptian Bank is a portfolio company of Finance Unlimited, a non-core Citadel Capital platform in the regional banking and finance industry.

Standard Bank of South Africa and Nedbank Limited as co-arrangers, as well as EIB, FMO, Proparco, East African Development Bank, PTA Bank, EKF, Triodos and DEG. The Government of the Netherlands has also provided a grant of $13.8 million and the European Union a further $34.6 million, through the EU Africa Infrastructure Trust Fund.

The LTWP consortium is comprised of KP&P Africa B.V. and Aldwych International as co-developers and investors; and Finnish Fund for Industrial Cooperation Ltd.


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COVERINTERVIEWCOVERINTERVIEW


As a truly African bank, how do you feel that you compete with global institutions working within the continent?Standard Bank aims to be the leading African

financial services organisation, and we are well-placed to achieve this. Our competitive advantages include our extensive geographical reach—we are currently represented in 20 African countries—and our distinctive home advantage. We are deeply rooted in Africa and have a deep knowledge of its economies.

Our strategic partnership with the Industrial and Commercial Bank of China, the world’s largest bank, enables us to connect Africa and China in a way unmatched by any

Sim Tshabalala, Joint CEO of Standard Bank Group and Chief Executive of Standard Bank South Africa, says green shoots are showing in the South African economy and Standard Bank is set to grow

Setting a new standard

other bank, and our presence in Africa’s major developing world trading partners, including Brazil and China, allows us to facilitate and intermediate trade and FDI.

The combination of our presence in strategic markets, and our on-the-ground soft and hard infrastructure, is unique in Africa. While big international banks share some of these advantages, they can’t match our on-the-ground network, or our strong connection with China and other emerging markets. These are not just abstract advantages. Our track record demonstrates how we turn our advantages into good deals for our clients and good profits for our shareholders. Examples include arranging pioneering sovereign bond issues for countries such as Namibia and Senegal; our role as the leading funder of South Africa’s Renewable Energy Independent Power Producer Procurement Programme; and our role as advisor on major mergers and acquisition sbetween Chinese companies and companies on the African continent, in deals cumulatively worth over ZAR 10 billion.

South Africa experienced slow growth last year. How has this affected your strategy and what is your outlook on growth potential for the bank in South Africa this year?Slow growth affects corporates and small businesses, and therefore jobs. Consumer and business confidence is low. Standard Bank anticipates that private consumption expenditure growth will slow to 2.1 per cent growth year on year, from 2.6 per cent year on year in 2013. We also expect interest rates to be raised by a total of 100 bps during 2015.

The consequence of all these trends is overall slowing of the economy, growing bad debts in the lower income segments, and more business rescues and insolvencies among small firms. The Ernst & Young Quarterly survey of SA banks indicates that retail banks expect credit losses

page 10-16 cover interview.indd 10 5/5/14 10:36 AM


owned enterprises such as Eskom and Transnet are investing in upgrading key elements of South Africa’s economic infrastructure. Constraints on the country’s ability to generate electricity, which have acted as a cap on GDP growth, are being addressed with the construction of two new coal-fired power stations, the first of which, Medupi, is expected to come online by the end of this year. All of this will boost the country’s economic activity, and drive activity in the financial sector.

On balance, we are confident that South Africa is going to remain a big, important and healthy financial services market. We recognise, however, that the banking revenue pool in the rest of the continent is going to grow twice as fast, particularly in respect of non-banking financial services, which is why our growth strategy is strongly directed toward the continent.

cont. on pg14

‘to surge’ in 2014. The depreciation of the Rand is great for exporters, but not so good for importer—and we serve both categories of business.

Having said all of this, our highly efficient South African retail bank continues to perform very well. In 2013, we saw earnings go up 15 per cent, while ROE was 22.8 per cent. Reasons for this include improved pricing for risk throughout the retail markets, concerted effort to get to the front of the digital revolution in retail banking, leading market shares in several important retail markets, and our response to market weaknesses and signals from the authorities in decisively moving away from unsecured lending at the bottom-end of the income distribution, while continuing to invest in the lower-income market with transactional and savings products. We continue to believe that a combination of rising incomes and a falling cost-to-serve will ensure that this is an attractive market in the longer run.

Taking a somewhat longer view of the South African economy, we believe that there are green shoots. Standard Bank expects GDP growth of about 2.1 per cent in 2014, up from 1.9 per cent in 2013. The rate of growth in capital spending by general Government is improving—we’ve seen increased spending by provincial and local Government departments on upgrading public infrastructure, and state-

We are confident that South Africa is going to remain a big, important and healthy financial services market

Standard Bank Head Office, Johannesburg, South Africa

page 10-16 cover interview.indd 11 5/1/14 3:47 PM

Authorised financial services and registered credit provider (NCRCP15). The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 180303 04/14Moving Forward is a trademark of The Standard Bank of South Africa Limited.

> Corporate and Investment Banking

IN AFRICA DIVERSE ISN’T JUST WHO WE ARE, IT’S HOW WE DO BUSINESS.An enormous variety of natural resources and agricultural offerings mean that African trades touch every corner of the globe. This sort of connectivity is something we’re quite familiar with; after all we’ve been making the right connections, locally and globally, for more than 150 years. If African exports can travel the world, think about how far your business might go with the right connections in Africa.

They call it Africa. We call it home.

www.standardbank.com/cib

Best Bank in Africa Best Investment Bank In Africa




cont. from pg11

Through your operations, do you see certain trends emerging in individual or corporate banking needs? Are there certain needs or challenges unique to the South African market?An overriding focus is to ensure that our clients and customers are at the centre of everything we do. The relationship between banks and customers has undergone a major shift in favour of the customer. Banks, technology companies and retailers are all competing for the same business.

We’re seeing increased multi-banking in the retail sector, together with raised consumer expectations about prices, services and rewards programmes. Customers increasingly expect us to deliver a slick, robust, user-friendly banking to their mobile devices, 24/7/365. So we must ensure that we offer seamless, efficient and cutting-edge banking, and that we constantly refine and reinvent our systems to out-innovate our competitors.

In the corporate sector, we’re seeing a growing trend in multi-banking and continued disintermediation in capital markets. Independent e-trading of forex, another form of disintermediation, is thinning bank margins in this market. In South Africa, banks are under political, regulatory and social pressure to define themselves more sharply and successfully as socially and economically valuable, and to earn and defend their value to their customers and to society in general.

Following the global financial crisis, there has been a comprehensive re-regulation of the financial sector—and the South African authorities have been among the earliest and most rigorous adopters of Basel III. While re-regulation was necessary and appropriate, the increasingly heavy regulatory burden that is being imposed on banks is now shifting toward over-regulation. This reduces competition and raises prices. Worse, if the net effect is to drive more financial activity into shadow banks, it could potentially destabilise the financial sector as a whole.

In your opinion, how might relatively new technologies such as mobile banking shape the industry and Standard Bank South Africa itself? In the retail sector, mobile banking provides an excellent mechanism to extend our reach, enhance our offering, and reduce our costs, but we need to couple innovation with a thorough understanding of customer wants and needs. We have to understand and use our customer data to offer better, more individualised services that save our customers time and money.

We’re currently making major investments in our IT systems, enabling us to combine robust and cost-effective processing with more individualised customer services. We do however recognise that not everyone wants—or is able to—bank online. There will always be a place for face-to-face contact and relationship building. The branch will increasingly cease to be a transactions hub, and become a specialised service centre.

Do you see certain non-banking services as areas for growth and improvement? International experience shows that demand for non-bank financial services grows most rapidly as countries enter and rise through the middle-income range. This is precisely what most of the Standard Bank Group’s African markets are expected to do over the next three decades as they take advantage of Africa’s unique demographic dividend. A parallel development within South Africa is the rise of the African middle class.

Our partnership with the Liberty Group is core to our strategy to build the leading Africa-focused financial services organisation beyond just a bank. By offering a comprehensive suite of wealth management and insurance products, our wealth, insurance and non-bank financial services businesses significantly broaden the Standard Bank Group’s value propositions now and into the future.

We are positioning ourselves as a leader in insurance and investments in Africa and other chosen markets to capture mass-affluent retail growth in insurance and investments in South Africa and Nigeria, middle market growth in Sub Saharan Africa through corporate arrangements, growth in asset management fund flows arising from reforms in Sub Saharan Africa; and to gain a good share of international flows into Sub Saharan Africa.

Along the same lines, do you see particular opportunities and challenges for Standard Bank’s investment banking arm in the year ahead? Africa’s growth and development are primarily driven by the oil and gas, mining and minerals, telecommunications

International experience shows that demand for non-bank financial services grows most rapidly as countries enter and rise through the middle-income range

page 10-16 cover interview.indd 14 5/5/14 10:38 AM


and power and energy sectors, with the refurbishment or building of infrastructure being a key requirement for the development of these industries. The growth and development momentum in these sectors depends on the availability of investment capital, whether it be from public funds, domestic savers, FDI, the African diaspora, portfolio flows or aid. Standard Bank’s deep specialisation in natural resources ensures that we are well placed to lead in this area.

Africa is also seeing rapid growth in the services sector, together with strong performance in agriculture. Take Nigeria for example—the recent rebasing exercise indicates that the services sector contributes 52 per cent to Nigeria’s GDP, while agriculture accounts for 22 per cent. Nollywood alone accounts for 1.4 per cent of economic production.

We’re committed to serving real economy needs in our countries of operation—making a positive contribution to economic growth and development. Our CIB revenues reflect a balance between liabilities gathering, liquidity and capital provision, transactional products and services, trading and advisory activities—keeping us tightly connected to the real economy. We build trusted partnerships with our clients and customers. We have helped to build great industries across Africa, using our financial muscle and expertise to create opportunities, jobs and wealth throughout the real economy. For instance, we have supported the extraordinary boom in the African ICT industry from its start in the late 1990s. Notable transactions included raising the largest ever financing deal on the continent: $2 billion for MTN Nigeria in 2007 and ZAR 1.5 billion in facilities for the MTN Group in 2009.

Standard Bank seems to place a lot of focus in sustainability efforts. What in your opinion is the importance of environmentally and socially-conscious banking, and what is your approach?We’re a real economy bank—we provide products and services that are relevant and appropriate to our various markets and support economic development. We make it possible for young people to invest in their future by accessing student loans. We enable the rising middle class to own income-enhancing assets such as cars and health-enhancing assets like fridges. We provide loans and enterprise development support to African-owned farms and SMEs. We enable people to plan and provide for their retirement years. And we empower families to buy homes—in South Africa, for example, we recently signed a finance contract with the European Investment Bank, which will see us making available about ZAR 400 million for the financing of affordable housing developments. We’re committed to making financial transactions as convenient as possible.

We also invest in infrastructure development. We’re working with governments across Africa to bring together and manage the funding of crucial economic and social infrastructure such as dams, roads, railways, ports and power stations. We’re one of Africa’s leading funders of green energy projects. As mentioned above, in South Africa, we‘ve lent nearly ZAR 16 billion to renewable energy projects over the past two years, and we plan to lend another ZAR 10 billion this year. And we’ve supported a variety of green energy projects across the rest of the continent too, such as the $150 million Aeolus wind farm in Kenya.

Can you describe the goals and significance of Standard Bank’s Black Economic Empowerment programme? How has the programme progressed since its institution? Standard Bank views transformation as a business imperative, applicable to every aspect of our business. Compliance with our regulatory obligations, while undeniably important, is only one aspect of our transformation agenda. The bank’s perspective on transformation is much broader—we see transformation as a fundamental change process, relevant to everything we do, both internally, and in our interactions with the South African economy and South African people.

Internally, we remain committed to increasing the number of black people—particularly Africans—women and people with disabilities across the bank, and especially in in leadership positions. This internal transformation, of course, needs to happen in a responsible manner, to ensure that, in executing the initiatives necessary to transform,

cont. overleaf

Standard Bank Head Office, Johannesburg, South Africa




we do not give rise to outcomes that adversely impact on transformation or the bank. We pursue all practical opportunities to hire and promote in favour of designated groups, and African employees in particular.

Our externally focused transformational efforts are also subject to commercial considerations—and there is a strong business case to be made. The development of growing and sustainable black-owned and controlled businesses, together with the expansion of financial inclusion, are good for economic growth and job creation, will assist in the reduction of inequality, and should improve social and political stability. And, of course, more successful black entrepreneurs and more jobs mean a larger customer base for Standard Bank.

Our loan exposure to black-owned small business grew by nine per cent in 2013, to ZAR 2.6 billion, and we provided non-financial business development support of ZAR 27 million to 277 SMEs, of which 94 per cent were black-owned businesses. We also have committed a dedicated line of credit to black SME farmers, and have to date approved finance to the value of ZAR 30.3 million. Our target for 2014 is to increase this to ZAR 100 million.

Standard Bank has set a cumulative empowerment financing target of ZAR 8.8 billion by the end of 2015. Our weighted average balance for 2013 amounted to ZAR 5.5 billion, 25 per cent up from our 2013 target of ZAR 4.4 billion.

What are some major industry challenges on the horizon in your opinion? How is Standard Bank South Africa approaching them? Africa is a fiercely competitive market. Africa’s major banks are expanding on the continent, and several major global universal banks are also expanding their African operations. Retail banks are also competing with mobile phone companies offering payment services; retailers providing credit; and on-line micro-lenders.

Yet Africa has made limited progress on regional integration. Regional blocs that have spurred economic dynamism in other regions, especially East Asia, are yet to develop. The region’s financial sector is challenged by constantly fluctuating exchange rates and inconsistent foreign currency regulations. Regional financial integration, and associated efforts to create a common financial system and harmonised cost structures, are proving to be a slow and difficult process. In the interim, constraints on capital access and flow are impeding business growth, and limiting opportunities for financial sector deepening.

The industry is responding to a continuing major wave of re-regulation of banking. KYC (Know Your Customer) has already significantly increased the bank’s compliance costs and Basel III has caused us to shift our business model towards a much greater concentration on flow business and

on relationship banking. Basel III, however, is certainly not all bad news: as a real economy, relationship-based bank with a great deal of expertise in efficient compliance, we believe we’re very well placed to compete in the Basel III world.

Competition for senior staff in Africa is especially strong in the financial sector, mainly due to skills shortages and high staff mobility. As economic growth in Africa increases, the pressure to find skilled executives rises. Remuneration patterns reflect this tension. Organisations try to match international salaries and attract international skills, often including additional pay packages for working in less developed economies.

Cyber-crime is also significant threat. In 2013, a McAfee sponsored study found that cybercrime and cyber-spying are costing the global economy as much as $300 billion annually. Banks could be losing about five per cent of revenue to cybercrime. African banks need to spend a great deal of money to combat this threat. If the banks and the authorities don’t get more of a handle on this problem, we could well end up slowing—or even stifling—the IT revolution in African banking.

In the year ahead, which sectors or offerings of Standard Bank are you most focused on growing and developing?As noted earlier, we’re seeing exciting growth for our corporate business in various economic sectors, and Standard Bank Group is well placed to expand in these areas. In retail banking, one particular area of focus in 2014 will be rolling out our new retail banking tablet and mobile app, first in South Africa, and then across Africa.

We’ll also be pursuing growth in targeted geographies. We expect Nigeria, Angola and Ghana to be our fastest-growing markets in the coming few years, followed by Kenya and Mozambique. Ethiopia also offers exciting prospects. We recently opened a representative office in Côte d’Ivoire, which signifies a deliberate drive by Standard Bank into the West Francophone Africa region, with the intention of using this office to become familiar with the region and identify opportunities for growth within it.

We are positioning ourselves as a leader in insurance and investments in Africa and other chosen markets to capture mass-affluent retail growth

cont. from pg15


bleed guide.indd 1 2/27/13 11:56 AM


COUNTRY FOCUS: MOZAMBIQUE

As Mozambique’s energy sector continues to boom, infrastructure and financial services are playing catch up and the Government has set its sights on establishing a development bank

Developing ambitions

Mozambique seems to have been the surprise story of 2013 growth and investment. Despite

severe floods early in the year that rocked the country’s agricultural sector, the IMF estimated that GDP growth was seven per cent for the year and is likely to accelerate to over eight per cent in 2014. It was also the most targeted African country for M&A in 2013 due to three multi-billion dollar deals in the energy and mining sector.

Yet not all of Mozambique has caught up to the high-speed growth of the energy and mining sector, and even this area is still massively untapped. As VTB Capital said in a February 2014 Sovereign Outlook, the “Mozambique investment case rests on its potential…however realising this potential will take time.”

Before recently discovered mineral wealth can start translating into fiscal stability, significant levels of infrastructure are badly needed. Currently the World Bank puts the country’s GDP per capita at $510

(2012 est.), among the lowest in Africa. The African Development Bank (AfDB) estimated in 2008 that over 80 per cent of the population lived on less than two dollars a day. Meanwhile the October 2014 elections are looming, prompting concerns over the opposition-led instability.

“These social pressures will make fiscal adjustment difficult as the government enhances social safety nets, increases public sector employment and raises capital spending,” VTB Capital said. “This will keep external accounts under pressure, and will also complicate inflation management.”

The IMF said in March that, “Relative to the size of its economy, public investment in Mozambique is high when compared to other countries and we urge the authorities to make substantive efforts to bring more transparency to investment priorities and decisions…this is particularly important as much of the investment is financed by borrowing and public debt levels are rising.” The Fund reported that the external current account

deficit is projected to reach 43 per cent of GDP in 2014 due to imports for large investment projects financed by foreign direct investment (FDI).

“Despite more than a decade of sustained high economic growth, Mozambique’s economy did not undergo any significant structural change, limiting its capacity to sustainably reduce poverty and foster human development, still one of the lowest in the world,” The African Development Bank (AfDB) said.

In the face of pressing infrastructure needs and diminishing international aid flows, the Mozambican Government has announced its plan to open a development bank. As a Government-owned bank specifically targeting economic diversification and the provision of long-term financing to SMEs, a Mozambique Development Bank (MDB) could be critical in near-term infrastructure building. In a

page 18-21 Country Focus Mozambique.indd 18 5/5/14 2:14 PM


The city of Maputo, capital of Mozambique

cont. on pg21

memo circulated earlier this year, the Government stated that MDB would also manage a national investment fund and operate a credit guarantee fund and interest rate equalisation fund.

Though the establishment of a development bank could help meet some crucial financing and infrastructure needs, the World Bank preaches caution. “The main rationale for using resource revenues to capitalise a development bank is to address financial market failures. A development bank’s mandate is often to provide credit and financial services to clients that are not served by the existing financial sector. This means that SMEs are often major beneficiaries of a development bank. In many

countries development banks have failed, generating financial instability and often forcing the Government to intervene at a considerable fiscal cost. Lessons learned from international experience and from Mozambique’s own history highlight the substantial risks associated with the creation of a development bank,” it said in a January 2014 Policy Note, Elements to Consider When Establishing the Envisaged Development Bank of Mozambique.

“Second, development banks cannot fix all the constraints limiting access to finance. These constraints reflect an interaction of multiple factors including a poor business environment, lack of information

infrastructure, limited managerial skills among borrowers, etc.,” the World Bank added. It advised that the establishment of the MDB should only come after an “in-depth diagnostic of existing financing gaps.

“The bank should have a clear policy mandate, including a well-identified target sector or market segment; sound corporate governance, particularly independent and professional board and management able to operate free of undue political interference; sound risk management; and adequate funding, regulation and supervision. It should contribute to recent progress in the expansion of financial services by complementing private financial institutions through focus on market gaps – including lack of long-term and SME financing,” The World Bank said.

The banking sysTeM The banking and financial sectors have positively transformed since reform efforts in 2001. The total number of bank branches increased from 228 in 2005 to 529 in 2012, though the World Bank has said there are disparities between the capital Maputo and the rest of the country and between urban and rural areas. State-owned banks also completed privatisation in 2001, lifting a heavy burden on public finances, while the powers and independence of the Central Bank were boosted. Over the years electronic payment systems have been incorporated, bank solvency has improved, microbanks and credit cooperative have sprung up, and commercial banking has grown from 12 present banks in 2000 to 18 in 2013.

Recent World Bank surveys point to an increase in access to finance by manufacturing SMEs, as evidenced by increased bank loans and overdraft facilities. Despite this, overall access to finance remains low. “The vast majority of firms in Mozambique identify limited

Lack of agricultural, long-term, and SME financing are often cited as the main financing gaps requiring urgent solution




MozambiqueSub Saharan Africa

Credit: IMF Republic of Mozambique: First Review, January 2014

In its first review of Mozambique earlier this year, the International Monetary Fund found the country’s macroeconomic outlook favorable. Growth, it said, is robust and inflation remains moderate, yet the IMF noted that there was “some slippage on structural reforms.”

“In spite of risks stemming from the uncertain global economy, growth is expected to be sustained in the medium-term by the natural resource boom and infrastructure investment,” The IMF said.

“The main short-term challenge is to maintain the growth momentum and to contain the fiscal expansion envisaged in 2014, reflecting both election year pressures and the spending of one-off revenue windfalls and of

external borrowing,” it continued. “Structural reforms along a broad policy spectrum should be implemented vigorously to foster sustained and more inclusive growth.”

Particularly with foreign aid likely to decline in the medium-term, non-concessional borrowing could become an important resource for continued infrastructure and community improvement. The IMF pointed to a number of regulatory needs, including strengthened debt management and investment planning, completion of legislation and fiscal regimes on the mining and hydrocarbon sectors and improved VAT administration as key needs in both the short- and medium-term.

MozAMbiquE: iMpAct of GLobAL DEvELopMEntS

Mozambique’s terms of trade have weakened with international commodity prices...

NOMINAL AND REAL EFFECTIVE EXCHANGE RATES (Index, Average 2005=100)

CURRENT ACCOUNT BALANCE AND FOREIGN DIRECT INVESTMENT (Per cent ofGDP

...while the real effective exchange rate has been broadly stable in the past two years.

The current account deficit has widened, reflecting sizeable investment imports for natural resource development

TERMS OF TRADE INDEX (2005=100)

Mega project’s export growth was counterbalanced by investment-related and fuel imports.

MERCHANDISE TRADE (Millions of US dollars)

Despite strong private capital inflows, the reserve cover declined owing to rapid import group.

PRIVATE FOREIGN CAPITAL INFLOWS AND RESERVE COVER

Deespite the global weakness, Mozambique’s growth outlook is robust.

REAL GDP GROWTH (Per cent)

2002

2002

Sep-

03Fe

b-04

Jul-0

4De

c-04

May

-05

Oct

-05

Mar

-06

Apr-

06Ja

n-07

Jun-

07N

ov-0

7M

ar-0

8Se

p-08

Feb-

09Ju

l-09

Dec-

09M

ay-1

0O

ct-1

0M

ar-1

1Ap

r-11

Jan-

12Ju

n-12

Nov

e-12

Mar

-13

Sep-

13

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

160

120

80

40

0

14.012.010.0

8.06.04.02.00.0

-2.0-4.0

140

120

100

80

60

40

40302010

0-10-20-30-40-50-60-70-80

10.0

8.0

6.0

4.0

2.0

0.0

-2.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Advancedeconomies

Real effectiveexchange rate

Nominal effectiveexchange rate

Reserve cover, months of projected imports, excluding mega projects (right scale)

Reserve cover, months of projected imports (right scale)

2004 2006 2008 2010 2012

20142013201220112010200920082007

20142013201020082002 2004 2006 20142013201020082002 2004 2006

2014

Proj

Proj

Proj

10000

8000

6000

4000

2000

0

Exports by mega projects Other exports Imports by mega projects Petroleum product imports Other imports

Private foreign capital inflows, US$ bil, (left scale)

Current transfersNet income flowsTrade balance (G&C)Current account balance, after grantsForeign direct investmentCurrent account balance, after grants, exc. mega projects

Proj Proj



cont. from pg19

access to finance as a key business constraint and Mozambique ranks near the bottom in terms of the legal and institutional strength for getting credit. Lack of agricultural, long-term, and SME financing are often cited as the main financing gaps requiring urgent solution,” the World Bank said in January.

Access to finance, though it is improving year-on-year, is still coming off a low base and is largely viewed as the biggest constraint to steady growth. The 2014 World Bank Doing Business Report ranks Mozambique 130 out of 189 economies in terms of the legal and institutional strength for getting credit. On top of that, 54.6 and 53.8 percent of manufacturing firms identified access to foreign credit and domestic credit, respectively, as the top two business constraints according to The National Directorate for Studies and Policy Analysis in Mozambique.

And despite new banks in the field, the system remains highly concentrated in the three largest banks, who owned 85 per cent of the total assets of the banking system in 2011. Nevertheless, this is an improvement on 100 per cent ownership by the top three in 2004. At the same time though, the World Bank found that the average profitability of the banking system as measured by the average return on equity (ROE), declined from 61 per cent in 2004 to 23 per cent in 2011—a tad higher than the Sub Saharan average.

Two Mozambican banks can be credited with improving the lending and SME financing landscape in the country, according to the World Bank. “Millennium BIM and BCI-Fomento,

the two largest commercial banks and the main drivers of the geographical expansion of the branch network in Mozambique, are reported as the providers of banks loans by 21 and nine per cent of the surveyed firms, respectively. Microfinance banks have also contributed to the improvement in lending, such as Socremo (20 per cent), ProCredit (16 per cent) and Banco Tchuma (seven per cent) – all microfinance banks that entered the market in the last few years and introduced innovative lending technologies,” The Bank said.

SME financing received another massive boost recently with AfDB’s approval of a $9 million line of credit (LOC) to Moza Banco, a fast-growing

financial institution with a particular focus on SMEs.

“The LOC will support SME sub-projects and these are well-diversified spanning all economic sectors including manufacturing, commerce/trade, services, tourism, construction, agriculture and transport. Economic benefits likely to accrue from the 70 SME sub-projects to be financed under this facility and these SMEs currently have approximately 2,000 employees and are going to add 400 new employees in rural and urban areas of Mozambique,” AfDB said in a statement. Moza Banco is part the AfDB’s Africa SME Programme, a four-year, $125 million funding programme combined with a $3.98 million technical assistance package by the Fund for African Private Sector Assistance (FAPA).

Despite more than a decade of sustained high economic growth, Mozambique’s economy did not undergo any significant structural change

GDP PER CAPITA AT CURRENT METICAIS

NampulaZambeziaTeteSofalaCabo DelgadoManicaInhambaneGazaMaputoNiassa

3,9863,8491,7841,6431,6071,4381,2721,2291,2061,171

78,132103,133101,78368,04977,8444,424

69,09676,08623,507

129,588

5137182421

325181651

9

Population, thousand Population, thousandPopulation, Density, persons per sq.km

35k

30k

25k

20k

15k

10k

5k

0kSu

m (G

DP P

er C

apita

at C

urre

nt p

rices

in m

etic

ais

2009

12,488

18,391

30,479

10,089 9,820

Maputo Sofala Inhambane Gaza Tete

Credit: AfDB Open Data




Moza Banco rising

Moza Banco is still relatively new. Started in June 2008 with Moçambique Capitais as

the main shareholder, the bank quickly began to gain traction, and by 2010 had been named by KPMG in the Top 100 Mozambican Companies.

The nearly six-year old Mozambican bank’s footprint is growing with its SME development focus and plans for an investment banking arm

Credit: African Development)

The bank continued to grow following a 2011 acquisition of a 25.1 per cent stake from Banco Espírito Santo’s (BES), the largest private Portuguese financial group (last year, BES acquired another 18.9 per cent stake, bringing BES to 44 per cent ownership). With the boost

of BES’s technological infrastructure and expertise, Moza Banco was soon recognised as one of the fastest-growing banks in the region.

In October of last year, Moza Banco issued and distributed the first Corporate Bond for a private company listed on the Mozambican Stock Exchange. Demand surpassed supply nearly threefold with more than 200 subscribers.

Currently, Moza Banco has 36 business units consisting of 22 retail agencies, 10 corporate units and four private business units. The bank ended 2013 with a presence in 10 out of 11 Mozambican provinces and plans to extend into the last province by the end of this quarter. It reports that out of 17 banks operating in the country, it has the fifth largest banking network.

Moza Banco is geared to grow in the SME sector with a recent decision by the African Development Bank (AfDB) to approve a $9 million line of credit (LOC) to the bank. “Moza Banco S.A. is one of Mozambique’s fastest-growing financial institutions with strong focus on SMEs,” AfDB said in a statement.

The LOC will support SME projects in manufacturing, commerce, services, tourism, construction, agriculture and transport. “Economic benefits likely to accrue from the 70 SME sub-projects to be financed under this facility and these SMEs currently have approximately 2,000 employees and are going to add 400 new employees in rural and urban areas of Mozambique. In addition, the project will induce transfer of technology, development of local entrepreneurship and enhancement of technical skills. The sub-projects will contribute to Government revenues in the form of value-added, income and corporation taxes,” AfDB said.

20 Meticais note, currency of Mozambique (Photo credit: Georgios Collidas)

page 22-23 Moza Banco.indd 22 5/5/14 10:48 AM


The programme will undoubtedly boost Moza Banco’s visibility and reach within Mozambique. Prior to the announcement, the bank stated that its 2014-2018 strategy would include “significant market share growth” along with continued brand awareness and branch expansion efforts. The bank also said it would creation a financial group encompassing investment banking, asset management and banc assurance within the next four years.

The two principal shareholders of Moza Banco, BES and Moçambique Capitais are expected to increase the bank’s capital by $5 million to $50 million, Chairman Prakash Ratilal told Mozambican daily newspaper Notícias on the back of a 2013 Board Meeting. The Chairman also confirmed plans to open a unit to finance development projects and set up an associated insurance company.

As of December 2013, Moza Banco achieved a market share of 5.4 per cent, 5.5 per cent and 5.7 per cent on loans, deposits and assets, respectively. The bank reported that balance sheet

structure lead to an overall loan/deposit ratio of 73.1 per cent at the end of the year and the solvency ratio declined significantly on the adoption of Basel II regulations at the same time.

MOZA BANCO (Market Share Analysis)

Moza Banco’s Ranking

Deposits (USD million)

Loans by Sectors (2013)

Assets (USD million)

Loans (USD million)

Equity (USD million)

Loans by Business Segments (2013)

Moza Banco’s GrowthMarket Growth

2011

2011

2011

20112011

2011

2011

2011

2011

2012

2012

2012

20122012

2012

2012

2012

2012

2013

96.6%

66.5%

70.6%

38.5%

54.9%

52.0%

19.1%

29.0%

16.1%

32.2%

21.0%

29.2%

6.4%

6.6%

10.6%

179.7%

179.9%

162.0%

2013

2013

20132013

2013

2013

2013

2013

Services

Trade

Individuals

Construction

Manufacturing

Tourism

Others

Corporate

Private

Retail

Institutional

Others

ASSE

TSLO

ANS

DEP

OSI

TS

7o

7o

7o

5o

5o

5o

5o

5o

5o

2019 2010 2011 2012 2013

30% 52% 162% 71%

56 73 110289

493

2019 2010 2011 2012 2013

67% 55% 180% 67%

24 39 60

169

282

2019 2010 2011 2012 2013

4.1%6.8%

3.1% 4.1%

28% 39% 180% 87%

42 53 74207

386

2019 2010 2011 2012 2013

25.1% 93.1% 35.9% 1.5%

13 1732

44 45

26.1%

22.0% 65.9%

16.1%

7.1%19.4%

13.4%

11.9%

page 22-23 Moza Banco.indd 23 5/5/14 10:49 AM


DIASPORA

Who needs Diaspora Banking?

W estern Union and Moneygram, the world’s leading money transfer companies,

have been accused of charging a premium of up to 12 per cent on remittances into Africa, according to a recently released report by UK-based think tank The Overseas Development Institute (ODI). Yet the banks in Africa appear to charge even higher.

The ODI report claimed that the two money transfer operators’ (MTOs) excessive charges cost African migrants approximately $1.8 billion annually, a significant leap from global rates.

A recently released report alleges that Western Union and Moneygram are charging a “super tax” on remittances to Africa. How could Diaspora Banking change the market?

“Migrants sending $200 home can expect to pay 12 per cent in charges, which is almost double the global average. While the governments of the G8 and the G20 have pledged to reduce charges to five per cent, there is no evidence of any decline in the fees incurred by Africa’s diaspora. There is no justification for the high charges incurred by African migrants,” the ODI said.

While it is difficult to pin down just how many Africans live outside their countries of origin, an assortment of statistics can paint a picture. The World Bank said in 2011 that the number of Africans that have migrated outside their country of origin in

recent decades is “conservatively” estimated to be more than 30 million (according to the United Nations, some 232 million international migrants are living in the world today) and has grown more than any other migrant community at 53 per cent in the past 10 years. The OECD estimated that one in every nine persons born in Africa with a tertiary diploma lived in an OECD country in 2010-2011. At the same time, the highest share of low educated migrants in the same period was recorded for migrants born in Sao Tomé and Principe (73 per cent), Cape Verde (68 per cent), Mali (67 per cent) and Guinea-Bissau (66 per cent).

page 24-27 Migration and Remittances.indd 24 5/1/14 4:00 PM

www.cpifinancial.net 25cont. on pg26

The latest World Bank figures show that remittances from migrants are expected to rise to $436 billion this year, more than three times what poor countries receive in overseas aid. That number is expected to rise to $516 billion in 2016.

Nigeria alone accounted for about $21 billion, or 65.6 per cent of flows into the region, and is forecasted to bring in $41 billion of remittances in 2016. The booming activity has led many banks in the region to establish Diaspora Banking services, including bonds, investments and remittance offerings.

However according to the ODI, banks are part of the price problem. While the ODI does not allege any sort of rate fixing between the two transfer companies, it notes that each one’s “exclusivity agreements” with banks and remittance agents in Africa have been one factor in the charges hike.

“Governments and regulatory authorities in sending countries should do far more to promote competition and encourage innovation,” The ODI said. “In an age of mobile banking, internet transfers and rapid technological innovation, no region should be paying charges at the levels reported for Africa.”

Yet remittance corridors within Africa actually charge the most excessive prices. The ODI reports that migrant workers from Mozambique sending money home from South Africa, or Ghanaians remitting from Nigeria, can face charges of more than 20 per cent.

“In several African countries, banks are the only agency authorised to conduct money-transfer operations, and typically partner with large MTOs,” the report noted. In countries where only banks are authorised to pay remittances, such as South Africa, Mozambique and Lesotho, half are agents of Western Union and MoneyGram. According to The International Fund for Agricultural

Development, banks in partnership with Western Union service about 41 per cent of payments and 65 per cent of all pay-out location. The ODI says that there are 29 countries in Africa where banks account for over half of the in-bound remittance payments; in Ethiopia, Niger and Nigeria the share is more than 80 per cent.

A home for innovAtion: DiAsporA BAnkingAll this begs the question: what do Diaspora Banking products at commercial banks provide? The service has risen over the past few years, and is already offered through many Sub Saharan African

banks attempting to reach citizens scattered throughout the world.

Yet ODI reports that all of the world’s top ten remittance-charging corridors are in Sub Saharan Africa, with South Africa and Tanzania “figuring in all but one of these corridors.” Migrants from Malawi, Mozambique and Zimbabwe employed in South Africa, and Ugandans remitting money home from Kenya face charges well over 20 per cent. In Ghana, Nigerian workers can expect to pay 39 per cent in charges.

“The very high charges levied on remittance corridors to and within Africa reflect the central role of banks – the most costly transfer vehicle,” said

AFRICA’S TEN MOST EXPENSIVE BANK REMITTANCE CORRIDORS

Angola

Zimbabwe

Zambia

Nigeria

Mozambique

Botswana

Kenya

Rwanda

Uganda

Malawi

South Africa

South Africa

South Africa

Ghana

South Africa

South Africa

Tanzania

Tanzania

Tanzania

South Africa

21

21

21

22

23

23

24

24

24

25

Destination Source Total % cost

AFRICA’S TEN MOST EXPENSIVE MTO REMITTANCE CORRIDORS

Rwanda

Lesotho

Swaziland

Zimbabwe

Botswana

Angola

Zambia

Mozambique

Malawi

Nigeria

Kenya

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

South Africa

Ghana

8

15

15

15

16

16

19

19

27

39

Destination Source Total % cost

Source: World Bank “Remittance Prices Worldwide Third Quarter 2013’ dataset.



DIASPORA

cont. from pg25

the ODI. Why are remittance charges for Africa so high? The ODI says it’s difficult to answer that question, largely due to the “opaque nature of commercial operations.” For MTOs, cost structures and foreign currency exchange fees, including currency volatility measures, are not openly provided and no MTO has disclosed the terms of their commercial agreements with African banks.

“While there is considerable variation across remittance corridors, several inter-connected factors combine to maintain Africa’s high charge structure. These include a lack of transparency on the part of RSPs, limited competition, regulatory practices that restrict market entry and – critically – a lack of financial inclusion in Africa itself.”

The key problem comes down to competition. A 2007 survey in Nigeria found that 21 out of 25 banks operating in the country had exclusive agreements with either Western Union or MoneyGram. The stifled market caused the Nigerian Central Bank to rule the next year that “exclusivity clauses aimed at protecting the interest of the International Money Transfer Operators constitute a restraint on competition and unnecessarily increase the cost of money transfer services to the users.”

Ghana and Senegal have followed suit and adopted rules prohibiting exclusivity, though in Ghana and Nigeria some of these exclusivity agreements do still persist. Tunisia has revoked all exclusivity clauses and made it law for banks to offer services from more than one MTO.

In countries where MoneyGram and Western Union dominate on the ground services, it’s difficult for banks to cut these agreements and still offer the same type of presence and reach. The ODI reports that in Africa there are 22 countries in which either Western Union or MoneyGram alone accounts for more than half of the total of remittance market share, and another 11 countries where the two together represent over half of locations. In Gambia alone, the two companies account for 96 per cent market share.

Remittance payments fall directly into the scope of Diaspora Banking services, and some banks are rising to meet the challenges. Equity Bank in Kenya offers remittance payments through the usual MTOs as well as PayPal, Visa Personal Payments (a service designed for direct payments

from card to card) and Equity Direct, a UK-exclusive deal with VFX financial PLC for direct transfers. The end result is that Equity Bank users enjoy affordable transfer rates while Equity Bank continues to pick up a healthy profit margin.

I&M Bank Limited also offers remittance payments through both the typical channels and alternate options such as I&M Webpay, which charges a fixed fee of two per cent per transfer, and “Brisk Transfers” with “low and reasonable charges” to account holders in Rwanda, Tanzania and Kenya.

In the Western region, Nigeria-based Fidelity Bank’s Diaspora services also offer multiple channels. “Fidelity operates a supermarket model offering all the major players and channels of remittance from all parts of the world to Nigeria,” Desmond Ohamma, Head of Diaspora Banking for Fidelity Bank, told Banker Africa. “These include Western Union, MoneyGram, RIA and Fidelity Bank’s flagship money transfer product Quickpay.” Fidelity Diaspora also offers bank accounts

The world’s poorest region is burdened with the world’s highest money transfer fees - ODI

moneY trAnsfer fees

12%

5%

G8 AND G20STANDARDS

7.8%

GLOBAL AVERAGE (EXCLUDING SUB SAHARAN AFRICA)

SUB SAHARAN AFRICAAVERAGE

Source: ODI.org/remittances-africa



in dollars, euros, pounds and naira to minimise currency exchange fees, and as with many other Diaspora offerings, account holders can also use internet banking to transfer funds to other bank accounts within Nigeria. “For us the emphasis is on migrating customers to self-service platforms,” Ohamma said.

Yet so far, very few banks offering Diaspora products seem to offer extensive MTO or direct transfer options. Despite the promise of fixed fees and free transfer within the bank, the real issue of migrant worker remittances from other countries continues to be a missed opportunity for innovation.

WhAt is the incentive for BAnks?The mobile banking industry has stepped up to offer incredibly simple person-to-person transfers, but mobile money has its limitations when it comes to formal savings accounts, loans, mortgages and other banking services. Diaspora Banking offers these services, yet often alongside hefty fees.

The ODI estimates that if remittance fees to Africa were reduced to the global average, transfers would increase by $85 million, rising to $225 million if charges were lowered to five per cent of payments.

Governments have already seen the massive potential in development financing drawn from Diaspora citizens. “Diaspora savings represent another potential source of development financing. With governments across Africa seeking long-term, affordable financing for infrastructure, these savings are an attractive proposition. Several have issued diaspora bonds to supplement aid, grants and sovereign debt,” the ODI said.

“Financial advisory services is one area that is key concern to [migrants abroad] and they value it a lot because it is vital to decisions they make back

home,” Ohamma said. “So as migrants in foreign countries, they don’t lose the focus to improve the life of people and the communities they left behind. The local financial needs include supporting their family members and dependents back home, building savings, housing projects and real estate investments, supporting development programmes, and making financial investments for higher returns in Money Market and Capital market investments.”

In March this year, Nigeria announced a bond issue of up to $300 million in cooperation with a number of international banks and registered with the US Securities and Exchange Commission. Observers predict it will be oversubscribed and the ODI claims that, “The Government of Nigeria

stands to secure financing at levels below the rate available on sovereign debt markets (around eight to nine per cent) and the Diaspora would have access to an asset generating higher returns than the close-to-zero real interest on bank deposits in the US.”

“Remittances are not just an economic transfer. They represent a social link between people,” the ODI said. “Migrants around the world have created ‘home town associations’ through which they retain links and provide support to communities.”

controversY BreWingMoneygram has vehemently denied ODI’s allegations. A spokesperson for the company said that migrants remitting from the UK to an African

If remittance fees to Africa were reduced to the global average transfers would increase by $85 million, rising to $225 million if charges were lowered to five per cent

country could expect to pay a charge of 5.1 per cent against a global average of 4.9 per cent. “We don’t recognise those numbers at all. There is no Africa premium,” the spokesperson said of ODI’s report.

Western Union said in a statement that ,“The average global revenue earned by Western Union from transferring money (including fee and FX) is five to six per cent of the amount being sent. However, our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility, and other market efficiencies. These factors can impact the fees and foreign exchange rates offered.”

Kevin Watkins, ODI director, said “The $1.8 billion lost through the super tax could put 14 million children in school, deliver clean water to 21 million and sanitation to eight million people.”

The report called for an investigation into the global money transfer firms by anti-trust bodies in the US and the UK, two of the largest remittance senders to Africa. While it is careful to note it is not claiming price collusion, it says that the “stifling” of competition by the two MTO powerhouses has removed a need for competitive rates.

During a talk given on the report on April 16, Dilip Ratha, Head of the World Bank Migration and Remittances Unit, said, “If you are waiting for the banks to cut the costs of remittances, you’re barking up the wrong tree.”



BESTPRACTICE

The selling points of sustainable banking

Sustainable banking encompasses a wide variety of products and strategies, from infrastructure and

environmentally-conscious investments to credit unions. First and foremost, the phrase comes with a directive to ethically invest and bank. Green and Blue Tomorrow, a UK-based magazine for ethical investment, defines sustainable investment as “the process of investing money in a way that balances the needs of the planet, its people, and profit.” The World Bank identifies the three pillars of sustainable development as economic growth, environmental stewardship, and social inclusion.

Clearly, a wide spectrum of activities could fall under the sustainability umbrella, including the Islamic banking sector and ‘green’ investment. Yet on the continent, the phrase has mostly come to signify community and infrastructure development. The World Bank estimates that the cost of redressing Africa’s infrastructure deficit is $38 billion in investment per year with a further $37 billion a year in operations and maintenance, amounting to $75 billion annually, or roughly 12 per cent of Africa’s GDP. There is currently a funding gap of $35 billion per year.

The World Bank said that, “If all African countries were to catch up with Mauritius in infrastructure, per capita economic growth in the region could increase by 2.2 percentage points. Catching up with Korea’s level would increase economic growth per capita by up to 2.6 per cent per year.

Sustainability is often the buzzword to drop when it comes to brand reputation, yet in Africa sustainable banking and investment carries significant weight for bank strategy

Credit: African Development)

page 28-31 Sustainable banking.indd 28 5/5/14 10:51 AM


In a number of countries—including Cote d’Ivoire, Democratic Republic of Congo (DRC), and Senegal—the impact would be even larger.

In most African countries, particularly the lower-income countries, infrastructure is a major constraint on doing business, and is found to depress firm productivity by around 40 per cent.”

As Sandra Abiola of the International Finance Corporation (IFC) told Banker Africa, “There is probably no other region in the world where good environmental and social [E&S] risk management and making use of sustainable banking opportunities is more important to the economic and social development than Africa.”

Supporters highlight a number of incentives attached to sustainable banking practices. Blue & Green Tomorrow claims that there is evidence showing sustainability-conscious decisions are actually beneficial to

performance, and points to a study last year by Moneyfacts.co.uk claiming that ethical funds had outperformed their ‘unethical’ peers over a 12-month timeframe. A favorite example in the field is the tobacco industry, which has long afforded solid returns for investors but now, due to tightened regulations and increased public health education, “will slowly lose value” according to Blue & Green. “Such investments are therefore unsustainable in the long-term,” it said this year.

A study by the Global Alliance for Banking on Value (GABV) called Strong and Straightforward: The Business Case for Sustainable Banking, found sustainable institutions to be more “robust and resilient” than the majority of high street institutions. GABV reported that on average, sustainable banks contribute over 72 per cent of their balance sheet in loans and deposits to the “real economy,” i.e. the production of goods and services over financial markets. Bigger banks,

Sustainable investment is not synonymous with ethical or ‘green’ investment. While these traits are important to sustainability, sustainable banking takes a broader focus of investing in sources of long-term stability and community welfare.

Potential Benefits of esRM accoRding to financial institutions

Source: AfDB Statistics Department

Improved quality of loan portfolio

Improved brand value

Attracting investments

Identified new business opportunities

Improved rating by analysts

0% 5% 10% 25%

9%

14%

22%

24%

28%

20%15% 30%

In a survey of 123 financial institutions in nine countries by the International Finance Corporation (IFC) earlier this year indicated that over a quarter of surveyed institutions felt implementation of Environmental and Social Risk Management (ESRM) would improve the quality of loan portfolios. (Credit: IFC Moving Forward with Environmental and Social Risk Management, 2014)

cont. on pg30

page 28-31 Sustainable banking.indd 29 5/1/14 4:03 PM


BESTPRACTICE

defined as Globally Systemically Important Financial Institutions (GSIFIs) set aside just over 40 per cent. The same report found that sustainable banks make better returns on both equity and assets and recorded a 16.6 per cent average growth rate over the 10-year period measured, compared to 6.9 per cent for GSIFIs.

While a 72 per cent dedication to real economy investment is an unlikely commitment for many international banks, sustainable banking has become second nature for many Africa-grown institutions. The World Bank reported in 2009 that Africa’s largest infrastructure deficit is in the power sector, an area African banks are now approaching with hefty sustainability-focused investments. Standard Bank recently committed ZAR 9.4 billion to 11 renewable energy projects in South Africa under the government’s Renewable Energy Independent Power Producer Procurement (REIPPP) Programme.

And Nedbank, nowadays a champion of sustainability, instituted a group sustainability governance structure, including risk management strategy through responsible lending and investment. “A key focus of the [Group Sustainability Committee] is to facilitate a greater understanding among our group’s bankers of the long-term sustainability implications – for both our bank and South Africa – of their decisions, actions and client

interactions,” Nedbank said in its 2013 Sustainability Review.

South African-based pension funds have also spearheaded sustainable strategies. “Many pension fund managers [in South Africa] are drawn to companies which follow sound environmental, social and corporate governance standards as a determinant of its capacity to

generate and preserve value over the long term, while they shy away from riskier investments by those who fail to do so. While the South African pension industry has been at the forefront of global best practice in terms of sustainable investment regulatory policy, the concept is nascent in the rest of Africa due to a lack of information as to why and how environmental, social and corporate governance standards should be mainstreamed into their funds,” The IFC said last year.

Sustainable investment is not synonymous with ethical or ‘green’

investment. While these traits are important to sustainability, sustainable banking takes a broader focus of investing in sources of long-term stability and community welfare. For this reason, investment in the energy and mining sector is a controversial topic for sustainability supporters. Fossil fuels are seen as harmful to sustained community

and environmental health, yet the industry’s progress in Africa has arguably improved lives and boosted economies. While limiting the energy sector’s growth is not an option, African governments are finding that best practice measures in line with sustainable strategy—including efforts for economic diversification, risk management and environmental safeguards—are the next best step. It’s why the African Development Bank put “the transition to green growth,” including alternative energy development, at the center of its new Ten-Year Strategy (2013-2022).

There is probably no other region in the world where good environmental and social [E&S] risk management and making use of sustainable banking opportunities is more important to the economic and social development than Africa

RENEWABLE ENERGY POTENTIALS ACROSS THE AFRICAN REGIONS

East

Central

North

South

West

Total Africa

2,000-3,000

-

3,000-4,000

16

0-7

5,000-7,000

20-74

49-86

8-15

3-101

2-96

82-372

1-16

-

-

-

-

1-16

578

1,057

78

26

105

1,844

3,000

-

50,000-60,000

25,000-30,000

50,000

155,000-170,000

Region Wind (TWh/yr) Biomass (EJ/yr) Geothermal (TWh/yr) Hydro (TWh/yr)Solar (TWh/yr)

Source: IRENA (2011), based a compilation of various sources.

cont. from pg29



It may also be why Nigeria is currently leading the sustainable banking campaign. Two years ago it established the Nigeria Sustainable Banking Principles, a code of conduct including signed by 34 of the major government, non-profit and financial institutions in the country, and recently The Central Bank of Nigeria and the IFC held the second annual Sustainable Banking Forum in Lagos.

“For Nigeria in particular sustainable banking is of critical importance given that several vital sectors of the economy are inherently of higher E&S risks, such as the oil & gas and infrastructure sectors. However other West African countries have similar challenges. For example the cacao sector in Cote D’Ivoire, and infrastructure development or the negative impact of climate change on food security across the continent,” Abiola said.

“The participation of financial sector regulators and members of IFC’s regulator network has increased significantly globally and regionally, reflecting the growing interest in establishing E&S risk management frameworks at the sector level,” Abiola said about the Forum. “Given that many regulators have already taken steps to develop their own frameworks, such as the Nigerian Sustainable Banking Principles or China Green Credit Guidelines, the topics discussed have moved towards how to ensure their proper implementation, e.g. through adequate supervision, monitoring and incentive systems.

“Nigeria has taken several critical steps towards establishing sustainable banking practices. During a CEO roundtable in 2011 a commitment was made to set up a working group and the banks then through a Joint Statement agreed on the development of sustainable lending principles for Nigeria. Weekly working group meetings to develop the principles

and sector guidelines were held over several months, which concluded with extensive consultations on the draft Principles and Sector Guidelines with all key stakeholders. The Nigerian Sustainable Banking Principles (NSBP) and Sector Guidelines were then agreed upon by the Banker’s Committee in July 2012,” Abiola said.

“Subsequently the Central Bank of Nigeria issued a circular to the banking sector endorsing the NSBP.

SuStainable future

The International Finance Corporation’s Sandra Abiola answers questions on sustainable banking in Africa

How do you think local banks can best approach a transition to sustainable banking practices? Do you think it takes involvement from international organisations?The best approach is usually when the financial sectors drives this development itself as it creates ownership, and when it is done jointly by all financial institutions. The development of the Nigerian Sustainable Banking Principles, which were developed by the Nigerian banks themselves, is a good example. Unless all banks aspire to incorporate sustainable banking practices it is difficult for individual banks to work with their clients on addressing E&S issues in their operations and they would typically be faced with the ‘first mover disadvantage’. The DFIs do play an important role in this process as they typically support the transition by providing the technical expertise and also bringing in global experience and standards that can then be adapted.

What do you think are some of the biggest challenges in achieving a sustainable focus at a bank? From our experience the biggest challenges usually evolve around three issues. The most important one is commitment by the bank’s senior management to foster sustainable banking and integrate E&S into its lending and risk management practices. Unless a bank’s senior management and board is actively driving the agenda and is providing adequate resources to their ESG teams, implementation will be severely hampered. Secondly, the lack of a common standard or framework in the market that applies to all financial institutions makes it difficult for individual banks to move towards sustainable banking. Lastly, one of the key challenges banks face is typically the lack of internal capacity and experience in undertaking E&S risk management as well as of consultants in the market to support them.

Important to note is that CBN had originally viewed the NSBP as a set of voluntary standards, but given the banks’ commitment to implementing them, CBN now considers them as quasi-mandatory and decided to take on a supervisory role. As such it is one of very few countries in Africa that has established its own framework for sustainable banking and where the Central Bank has been actively involved in the process.”



NIGERIA

Nigeria Finance Minister named one of ’s 100 most influential people

N igeria’s Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala,

along with a host of other world leaders and icons, was recently named on TIME magazine’s annual list of the 100 Most Influential People in the World. Okonjo-Iweala was honoured at a gala in New York alongside Aliko Dangote, President and CEO of the Dangote Group and another honoree on the annual list.

The Minister was named in the ‘Leaders’ category, which features Presidents and Prime Ministers such as Russia’s Vladimir Putin; Shinzo Abe of Japan; Xi Jinping of China; US President Barack Obama; German Chancellor Angela Merkel; Nerandra Modi of India ,and Iran’s Hassan Rouhani.

Described as the ‘Guardian of Nigeria’s Public Funds,’ Okonjo-Iweala, whose profile was written by famous U2 musician Bono, was hailed for taking up “one of the toughest jobs on the planet.”

Director of the World Bank, returning to the bank after her departure in 2003 to be Finance Minister. Okonjo-Iweala returned to the position of Finance Minister in 2011 as part of President Goodluck Jonathan’s cabinet, and has since pushed for transparent governance and reduction of the country’s recurrent expenditure. In both 2007 and 2012, Okonjo-Iweala has been a close candidate for World Bank President.

Now in its 11th year, the list recognises the activism, innovation and achievement of the world’s most influential individuals. As TIME has described the list in the past, “They’re scientists, they’re thinkers, they’re philosophers, they’re leaders, they’re icons, they’re artists, they’re visionaries. People who are using their ideas, their visions, their actions to transform the world and have an effect on a multitude of people.”

In her response, Okonjo-Iweala stated that, “I am delighted and honoured to be included in this August list. I could not be happier that someone of Bono’s distinction, a lover of Africa, wrote about me.

“I am grateful to God that two Nigerians were recognised this year. It is wonderful for Nigeria. I see that other Africans were also recognised. So, I think it is a measure of where our continent is heading despite all our challenges.”

Okonjo-Iweala first became Finance Minister in 2003 during President Obasanjo’s term. In 2005 she spearheaded the milestone Paris Club deal, leading to a $18 billion debt write-off for the country. She was also instrumental in helping Nigeria obtain its first sovereign credit rating, BB-, from Fitch and Standard & Poor’s.

In 2007, she was appointed Managing

Dr. Ngozi Okonjo-Iweala recognised by TIME magazine

L-R Halima Dangote; Chairman of Dangote Group Aliko Dangote; Minister of Finance of Nigeria, Dr. Ngozi Okonjo-Iweala and her husband Dr. Ikemba Iweala

page 32 Nigeria Finance Minister.indd 32 5/5/14 11:00 AM

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GOVERNANCE

Budget portal

opening door for

development

T he Open Budget Portal was only formally launched by the World Bank in December 2013, yet the initiative is

fast growing. The online repository for clear and timely budget data boasts 13 ‘graduates’ of the Bank’s BOOST Initiative, a government accountability collaboration established three years prior, and will likely add to its portal soon as BOOST’s approximately 40 global projects progress towards

budget transparency and solid data reportage.

However many trials lie ahead, particularly in developing countries where anything from digitalisation to government attitudes towards openness can stall transparency efforts. Massimo Mastruzzi and Robert Hunja of the World Bank Institute spoke to Banker Africa about the importance of fiscal transparency and the challenges ahead.

Can you first give a brief outline of the Open Budgets Portal?Mastruzzi: The Open Budgets Portal is an online repository of high quality budget data for governments around the world. It was formally launched in December 2013, as part of our efforts to advance fiscal transparency and open data. The Portal provides detailed budget data that can be easily accessed by users. It can help inform the policy dialogue around public expenditures, and can be used by citizens to monitor government spending. Civil society organisations (CSOs), the media, parliaments, the private sector, and citizens can monitor and analyse the expenditure data and hold their governments accountable for efficient spending, reduced corruption, and improved service delivery.

The Portal showcases 13 countries so far,1 including Kenya, Seychelles, and Togo from Africa, with more

The World Bank’s Massimo Mastruzzi, Senior Economist, and Robert Hunja, Manager of Open Government Practice, discuss the impact of true transparency in government spending

GOVERNANCE

page 34-37 Open Budget.indd 34 5/5/14 11:14 AM


Massimo Mastruzzi, Senior Economist, World Bank Institute Robert Hunja, Manager of Open Government Practice

cont. on pg36

countries expected to join in the near future. The Open Budgets Portal helps to bring visibility to countries’ efforts to enhance fiscal transparency, facilitate access to and promote the use of public expenditure data, and motivate other countries into action. The datasets featured in the Portal are drawn from the World Bank’s BOOST initiative, which helps governments improve the quality of budget data, and facilitates rigorous expenditure analysis and fiscal transparency. BOOST draws detailed expenditure data from government financial management information systems and creates easy to use and publicly digestible databases.

In what capacity is the World Bank involved in these countries’ open budget implementations?Hunja: The ultimate objective of our engagement around open budgeting is to help countries make their budgets more open, inclusive, and responsive to citizens, in order to foster accountability for quality and accessibility of public services. Opening up budget data is the first

step to achieving this objective, and needs to be complemented with the use of the data by non-state actors to hold their governments to account.

The Open Budgeting Portal and BOOST are components of our overall Open Budgeting Program. This umbrella programme adopts a comprehensive approach to open budgeting that engages all the actors on the supply side (government and Supreme Audit Institutions) and demand side (parliaments, CSOs, media, and citizens) of public budgeting along the entire budget cycle, to help enhance budget transparency, public participation and multi-stakeholder collaboration around national budgets.

We also build capacity of civil servants, CSOs, media, citizens, and parliamentarians to analyse and use budget data. We support the regional networks for fiscal transparency to help share lessons among countries that will strengthen and enhance efforts to open up country budgets, and we are part of the global coalition driving the agenda of fiscal transparency and open data.

Why is open budgeting, and financial accountability in general, important to poverty alleviation?Hunja: Imagine how important a public kindergarten can be to a single mother in Togo, or how a simple dirt road can drastically improve a farmer’s life in a remote village in Kenya by enabling him to take his produce to the market. Yet, the ability of even the most well-meaning governments to provide these critical services to the poor and vulnerable is often constrained by significant inefficiencies and leakages in the execution of public budgets. When budget data is available for people’s scrutiny and the budgeting cycle is open to people’s participation to reflect their priorities and feedback, it can potentially help improve efficiency of spending, and ensure that valuable services reach the poor. So open budgeting is important for service delivery and poverty alleviation, and it is important to build capacity of civil society and other non-state actors such as the media to make use of budget data for monitoring of public expenditures.



GOVERNANCE

cont. from pg35

In Sudan, for example, we have provided hands-on learning across the full budget cycle to journalists from 22 media outlets. The training covered a range of topics including finance, economics, and development issues at national and regional levels. This resulted in public engagement with the Government and civil society and private sector advocacy across a range of sectors and issues such as support to agricultural producers and enhanced social services for the poor.

What are your criteria for an open budget? Hunja: When we speak of open budgeting, we should look for two main components to be present – open budget data, and openness and opportunities for citizen participation throughout the budget cycle.

One of the criteria for open budget data is coverage – how much information a government makes available to the public. This should come with reliable and accurate data. One of the latest studies by the World Bank shows that so far only a small group of governments (24 out of 198 surveyed)2 provide access to “reliable, accurate, and meaningful” open budget data. Timeliness of open budget data is also very important. For example, has the government published its budget proposal to the parliament early enough for citizens, CSOs, media and the private sector to be able to study it and participate in the public debate before the budget is enacted by the parliament? In terms of access and usefulness, governments should

make sure that budget information is disseminated through many different channels, such as the internet, TV, and newspapers, and that information is available in user-friendly formats and is understandable for the general public.

Opening budget data is not enough. Governments should pro-actively inform their citizens about the available open data and encourage use. If people are not aware and do not use the data to hold their governments accountable, then open budget data serves little

development purpose, if any at all. This brings us to the second component - an open budget cycle, one that is open for entry and participation by all state and non-state actors at every stage of public budgeting – budget formulation, enactment, execution, and monitoring and audit.

In Africa specifically, what challenges do you anticipate for open budget implementation? Mastruzzi: The biggest challenge is getting governments to publish reliable budget information regularly, in a timely fashion, and with sufficient detail to get an adequate picture of where public resources are being spent. According to a recent report from the Overseas Development Institute (ODI) and the International Budget Partnership (IBP), only a small share of African governments makes their approved budgets and annual reports available online.

Among those that publish their budget reports, in Africa and elsewhere, a common practice is to present the

information in PDF format. This limits the ability of civil society and advocacy groups to analyse the budget, as the data must be extracted and manipulated manually before it can be used for analysis. Data quality is also an issue.

Through the World Bank’s Open Budgets Portal we provide access to budget data in accessible formats (i.e., soft copy), and we also ensure consistency against published figures.

What is the process for the World Bank’s Open Budgets Portal? Where does an individual implementation start?Mastruzzi: As more countries move to make their budget data available to the public, the Open Budgets Portal will continue to highlight these efforts and work to present standard, easy-to-use datasets to a growing global audience. In order to join the Portal, countries must agree to release highly disaggregated budget data to the public, and undergo the BOOST vetting process. In broad terms, this means providing data that is timely (yearly data through 2013), comprehensive (all levels of government), granular (most disaggregated as allowed by the country’s budget classification), and reliable (can be reconciled against published figures). Countries must also commit to provide data on a yearly basis in order to keep the datasets current. In your opinion, what are some significant examples of financial accountability in Africa? Hunja: In South Kivu, a province in the Democratic Republic of Congo, the World Bank supported a project to enhance the Government’s participatory budgeting initiative through the use of information and communication technologies (ICT), specifically SMS. Through the use of SMS, the Government was able to simplify the voting process, inform people about

The ability of even the most well-meaning governments to provide these critical services to the poor and vulnerable is often constrained by significant inefficiencies and leakages



the voted decisions, and keep them up-to-date about the implementation of the voted projects district-by-district. This participatory process brought about many positive changes, from the increase in tax collection (citizens witnessed the implementation of the projects they had voted on) to higher transfers from the provincial Government to the local Government. Moreover, it allowed the Government to rapidly address and improve delivery of services in areas such as education, health, and water and sanitation.

In Tanzania, the Government produced for the first time a Citizens Budget for fiscal year 2010-2011. This is one of the eight key budget documents that Governments should make available to the public, according to international standards and best practices. The Citizens Budget is unique in that it is exclusively developed for the public. It allows people with no technical budget expertise to understand how the Government raises, allocates and plans to spend resources. Tanzania’s score in the 2012 edition of the Open Budget Index, which is published by the International Budget Partnership, increased as a result. By translating a technical document like the budget into something more accessible, the Citizens Budget increases transparency and allows citizens to hold their governments accountable. Are there incentives for governments to be involved in this process? How might they be engaged? Hunja: Absolutely. Fiscal transparency is a key component of good governance. It informs the dialogue between state and non-state actors about stated policy priorities and results, and it is a prerequisite for accountability.

Also, engaging with citizens around open budgeting builds trust in government and may foster domestic legitimacy. If citizens perceive that

government is transparent and responsive to their needs, they may even be more inclined to pay taxes, as the example from South Kivu indicates. Of course, the right circumstances need to be in place for this to happen -an active civil society and political will, among others.

Last but not least, as stated earlier, open budgeting can support poverty alleviation efforts by enhancing development results.

In the same thread, how might individual auditing groups be encouraged and improved?Mastruzzi: The International Monetary Fund (IMF) has highlighted the importance of promoting strong domestic constituencies such as legislatures, supreme audit institutions (SAIs), and independent fiscal agencies for fiscal

transparency through institutional reforms. The ability of these constituencies to effectively promote fiscal transparency depends on a variety of things, from the institutional setup to the level of capacity.

One exciting global trend is the movement of SAIs towards enhancing citizen participation in the audit process, and this is supported by INTOSAI, the international SAI body. The World Bank Group is actively seeking to collaborate with clients and global institutions to support the movement towards citizen engagement in audits. In addition, we continue to

build the capacity of other actors such as civil society, parliaments and the media to collaborate with governments to advance the open budgeting agenda.

Besides an open budget, what else needs to be in place for financial accountability and civic engagement?Hunja: For open budgeting to be sustainable, there needs to be an enabling environment at the country level and strong, sustained supporting efforts at regional and global levels. There needs to be political will for greater openness in the country, anchored in legal framework and implementation of the laws for fiscal transparency and citizen participation. This will help to create the right incentives for openness

and participation among both for the Government and non-state actors. Civil society also needs to strengthen its capacity to engage with governments that become increasingly open.

As development institutions, we should support all actors by building capacity and helping them work together. We will continue working with our global and regional partners as well as our partner countries to push this agenda forward, and to polish and consolidate the global criteria and norms for fiscal transparency, open data, and citizen participation.

Opening budget data is not enough. Governments should pro-actively inform their citizens about the available open data and encourage use

1The countries and state governments featured in the Portal include Armenia, Guatemala, Kenya, Kiribati, Minas Gerais (Brazil), Moldova, Paraguay, Peru, Poland, Rio Grande do Sul (Brazil), Seychelles, Solomon Islands, and Togo.

2A World Bank study on Financial Management Information Systems (FMIS) and Open Budget Data examined the budget data disclosed by governments on the web.



GOVERNANCE

All in the family

Family members and friends of former Tunisian President Zine El Abidine Ben Ali manipulated the country’s regulations to

eventually capture over 21 per cent of all private sector profits in Tunisia, according to a new policy paper by the World Bank Group, All in the Family: State Capture in Tunisia.

“This study provides compelling confirmation that the former regime benefited from crony capitalism,” said Bob Rijkers, PhD, researcher at the World Bank Research Department and the study’s lead author. “We show that interventionist industrial policy became captured by the family of the president and de facto became a smokescreen for extraction of rents. In fact the evidence suggests that the State allowed capture of a significant part of the private sector to be appropriated for the regime’s own rent-seeking by ‘ring-fencing’ family connected companies from regulations or giving special advantages to those firms. More perniciously, we also found evidence that the regulations themselves were in fact being adjusted in function of personal interests and corruption.”

Through at least 220 firms directly linked to Ben Ali, insiders were able to outperform competitors in employment, output, market share, profits and growth,

Tunisia’s ‘crony capitalism’ under President Zine El Abidine Ben Ali still has lingering effects on the economy as well as leasing companies’ performance

all conditions able to be controlled in highly regulated sectors.

“Performance differentials between connected firms and their competitors are significantly larger in sectors subject to authorisation requirements and foreign direct investment (FDI) restrictions,” the report said, noting that sectors with stringent entrance regulations were easier to manipulate.

The World Bank said, “Tunisia provides a relevant context to examine who reaps the rents from regulation. It resembles many other developing

countries in having a development model based on rather extensive state intervention.” These sectors included telecommunications, transport and real estate.

“The former Tunisian ruler’s ‘clan,’ defined as those who have been declared as corrupt and had their assets confiscated, invested in lucrative sectors that were protected, mainly through prior authorisation requirements and the use of executive powers to change the legislation in the regime’s favor, creating a large scale system of crony capitalism,” The World Bank said in a statement regarding the report.

The business model certainly seemed to work. Throughout the time measured, Tunisia registered stable positive growth rates between four and five per cent per annum, and the World Economic Forum repeatedly ranked Tunisia as the most competitive economy in Africa. Ben Ali’s close relationship with the business community was no secret in these years, but his overall positive image and the country’s continuously stable economy deflected criticism.

page 38-39 Tunisia Regulations report.indd 38 5/5/14 11:56 AM


Nevertheless, the Arab Spring left no question as to the flaws in the system. Unemployment and corruption were increasingly high leading up to the 2011 revolution, and dissatisfaction with the bribery-fed business system spread.

Following the uprising, it was found that the 220 confiscated Ben Ali firms appropriated 21 per cent of all net private sector profits and accounted

Leasing companies in Tunisia are weighed down by continued uncertainty over political and economic stability following the 2011 uprising, according to the latest report by Fitch Ratings.

“Tunisia is still coping with the repercussions of the 2011 Arab Spring, and its economy is still being dragged down by a long political transition, which is generating ongoing uncertainty and undermining investment,” Fitch said. It revised down its projections for Tunisia’s real GDP growth to 2.8 per cent for 2013 and three per cent for 2014 (from 3.5 per cent and 4.2 per cent respectively), compared with 3.6 per cent in 2012 and three per cent y-o-y in 1H13.

Fitch noted that liquidity pressures arose in the Tunisian financial sector from the economic disruption, deposit flights and growing overdue loans in 2011. Therefore, local interest rates have been on an upward trend since 1Q12.

“The leasing sector, which encompasses nine companies, remains overcrowded. Competition is therefore a key driver for Tunisian leasing companies’ strategies, with leaders (such as Tunisie Leasing and Arab Tunisie Lease) fighting to maintain their market shares and smaller (or outsider) companies (Arab International Lease, El Wifack Leasing and Hannibal Lease) aiming to gain market share. The

LOAN GROWTH

Source: Financial and leasing companies 2011 2012 2013 (estimated)

(%)

40353025201510

50

-5-10

AIL ATL AL CIL EWL HL ML TL Sector average

for approximately three per cent of private sector output. The numbers could be bigger, as the 220 listed firms were only those directly linked to Ben Ali family members.

“The effects are economically meaningful. Even after controlling for its superior size, the market share of a typical Ben Ali firm is 6.3 percentage points higher than the average firm, and

this conditional differential is entirely due to Ben Ali firms sorting into the regulated sectors,” The World Bank said.

The evidence found 25 decrees issued during the 17-year period introducing new authorisation requirements in 45 different sectors and new FDI restrictions in 28 sectors. This resulted in over one-fifth of all private sector profits accruing to ‘connected’ firms.

vast majority of the clients of these companies are SMEs and professionals, which are more vulnerable to economic downturns than large corporates,” it said.

Fitch noted that since 2012, loan growth in the leasing sector has been decelerating. At end-1H13, it was six per cent y-o-y, compared to a high 19 per cent on average between end-2007 and end-2011. “Discrepancies among leasing companies have been obvious since 2011, largely owing to uneven access to funding and different risk appetites. As such, Tunisie Leasing, Arab Tunisian Lease, Compagnie Internationale de Leasing and Hannibal Lease SA have had to reduce new lending significantly since 2011. At the other end of the spectrum, Attijari Leasing, El Wifack Leasing, Arab International Lease and, to a lesser extent, Modern Leasing took advantage of the 2011 liquidity crisis to gain market shares in 2011 and 2012 despite the fragile operating environment. These entities faced lower liquidity constraints than peers and have been able to expand their franchise thanks to their funding base being largely supported by their parents,” Fitch reported.

LeAsing comPAnies weAk in wAke of TrAnsiTion

page 38-39 Tunisia Regulations report.indd 39 5/5/14 11:56 AM


M&AFOCUS

Quiet quarter for M&A

T he first three months of the year were slow for investment banking service fees and M&A transaction values in

Sub Saharan Africa, according to the newest report from Thomson Reuters. Service fees for the region totalled $34.9 billion in Q1 2014, while the total value of M&A transactions reached

Saharan African Fee League Table with a 41 per cent cut. Barclays and Morgan Stanley followed in second and third positions, respectively.

It was a slow quarter overall, as investment banking saw year-on-year declines across all asset classes. Syndicated lending fees suffered the sharpest decline, falling 96 per cent to

$3.7 billion, a 67 per cent and 56 per cent drop, respectively.

Fees from advisory on completed M&A transactions dropped 43 per cent to $11.9 million during the first three months of 2014, marking the lowest first quarter total for M&A fees in the region since 2002. Investec topped the list according to Thomson Reuters’ Sub

Thomson Reuters’ quarterly data shows Q1 M&A value in Sub Saharan Africa was down 56 per cent compared to Q1 2013

SUB SAHARAN AFRICA TARGET M&A VOLUMES

SUB SAHARAN AFRICA TARGET M&A - MOST TARGETED NATIONS

SUB SAHARAN AFRICA TARGET M&A - MOST ACTIVE SECTORS

SUB SAHARAN AFRICA TARGET M&A - MOST ACQUISITIVE NATIONS

South Africa (48%)

Angola (20.2%)

Mauritius (9.1%)

Namibia (6%)

Zambia (3.7%)

1Q 2014 Value $ bln 1Q 2013 Value $ bln

Rank Value ($ bln) # Deals

$1,811

$750

$336

$224

$135

Hong Kong (27.1%)

South Africa (20.6%)

Angola (20.3%)

India (9.1%)

United Kingdom (6%)

$1,000

0.20.50.40.2

0.00.3

3.0

0.4

2.1

4.3

3.76.3

7.67.18.4

10.4

4.54.54.24.75.45.06.18.6

13.1

5.2

24.6

(US$ mil)

$762

$750

$336

$221

$30

$25

$20

$15

$10

$5

$0

160

140

120

100

80

60

40

20

0

$5

$4

$4

$3

$3

$2

$2

$1

$1

$01Q’09 3Q’09 1Q’10 3Q’10 1Q’11 3Q’11 1Q’12 3Q’12 1Q’13 3Q’13 1Q’14 Energy & Power Materials Real Estate FinancialsConsumer

Products & Svs

3.73.25.45.3

page 40-41 TR report.indd 40 5/1/14 4:07 PM


$1.8 million, the lowest first quarter total since 2000. Debt capital markets underwriting fees totalled $2.2 million while fees from equity capital markets underwriting fell 33 per cent to $19 million.

Nadim Najjar, Thomson Reuters Managing Director for Middle East, Africa and Russia / CIS, said that, “Despite the decline, equity fees accounted for the highest share of first quarter Sub Saharan African fees since 2007.”

In M&A activity, the most targeted

nation by value so far this year was South Africa, accounting for 49 per cent of activity, followed by Angola (20 per cent) and Mauritius (nine per cent). On the buying side, Hong Kong was the most active buyer in the region following the $1 billion offering by Theme International Holdings for oilfield exploration company Everest Hill Energy Group. Najjar reported that Energy & Power was the most active sector, accounting for 58 per cent of Q1 deals, followed by the Materials sector at 12 per cent. Citi and Bank of America

Merrill Lynch shared the first position for Q1’s announced deals involving Sub Saharan Africa, with $770 million each.

Equity and equity-linked issuance in Sub Saharan Africa totaled $920 million during the first quarter of 2014, an increase of four per cent from the same period last year. “The only deal outside of South Africa during the first quarter was a $66.6 million follow on offering from Zambia’s Copperbelt Energy Corp, which was the third largest equity deal of the quarter,” Najjar said.

SUB SAHARAN AFRICA M&A FREE LEAGUE TABLES ($MM)

TOP 10 SUB SAHARAN AFRICAN TARGET M&A DEALS - FIRST QUARTER 2014

1 Investec2 Rand Merchant Bank3 Deutsche Bank4 AfrAsia Bank Limited5 PricewaterhouseCoopers6 Barclays6 DDA & Co LLC6 HSBC Holdings PLC9 Jefferies LLC10 PSG Capital (Pty) LimitedGrand Total

4.871.191.190.680.640.500.500.500.450.43

11.92

41%10%10%

6%5%4%4%4%4%4%

100.0%

Rank Manager Fees Market Share %

FIRST QUARTER 2014

1 Barclays1 JP Morgan1 Credit Suisse4 Bank of America Merrill Lynch5 Citi6 Standard Chartered PLC7 Investec8 BDO9 LiquidAfrica Pty Ltd10 goetzpartners Corp FinanceGrand Total

3.443.443.442.342.001.681.211.011.000.50

20.92

16%16%16%11%10%

8%6%5%5%2%

100.0%

Rank Manager Fees Market Share %

FIRST QUARTER 2013

1,000.0

750.0

336.3

241.1

190.0

135.4

118.0

112.3

74.0

78.7

16/03/14 Everest HillEnergy Group Ltd04/02/14 Offshore Angola Block 15/06

16/02/14 Essar Energy Plc

18/03/14 JD Group Ltd

18/01/14 Langer-Langer Heinrich Mine05/02/14 Mining Properties - The Shongwa07/03/14 Annuity Properties Ltd03/03/14 Vaninga

26/02/14 Eco Health Ltd

13/03/14 MDM Engineering Group Ltd

South Africa

Angola

Mauritius

South Africa

Namibia

Zambia

South Africa

Mozambique

Nigeria

South Africa

Energy and Power

Energy and Power

Energy and Power

Consumer Products and Services

Materials

Materials

Real Estate

TelecommunicationsConsumer Products and Services

Industrials

Theme Intl Hldg Ltd

Sonangol EP

Essar Global Fund Ltd

Steinhoff Intl Hldg Ltd

China UraniumCorp LtdSt Georges Platinum & BaseRedefineProperties LtdAthlone Investments Ltd

Imperial Logistics Pty Ltd

Foster Wheeler M&M Ltd

Hong Kong

Angola

Cayman Islands

South Africa

China

Canada

South Africa

Israel

South Africa

British Virgin

-

-

Greenhill & Co, LLC JP Morgan Cazenove

-

JP Morgan

-

-

-

-

GMP Securities LtdCanaccord Genuity

-

-

VTB Capital

Investec Bank Ltd

CCB International Capital Ltd

-

Java Capital (Properties)Ltd-

-

Barclays

Value ($mil) Rank Date Target Name Target Nation Sector Acquiror Name Acquiror Nation Target Advisors Acquiror Advisors

page 40-41 TR report.indd 41 5/1/14 4:07 PM


M&AFOCUS

M&A and investment grow with the middle class

A series of large deals in 2013 drove the total value of Africa-related mergers and

acquisitions (M&A) activity to $30.3 billion, up 29 per cent from 2012 and the best annual total in the region since 2010’s $51.5 billion. Yet the first quarter of 2014 was the slowest in years for the rising M&A market.

Globally, a number of high-value transactions, including Facebook’s $19.4 billion acquisition of Whatsapp and competitive bidding for Time Warner Cable, brought first quarter activity up by 54 per cent compared to last year (without the competing Time Warner Cable bids, Thomson Reuters says activity is closer to 35 per cent). Total value of announced deals worldwide was $710 billion in Q1 2014, according to Thomson Reuters.

Meanwhile, an opposite trajectory has happened in Africa. Mergermarket

reports that M&A targeting African and Middle Eastern companies dipped 50.4 per cent to $6.3 billion in Q1 2013, compared to $12.7 billion in Q1 2013. So far this year, that’s a 60.4 per cent drop from Q4 2013’s $15.9 billion total. This year’s first quarter marks the lowest-valued quarter since Q2 2009, when transactions involving Africa totaled $4 billion. The top three deals account for almost half of the entire region’s M&A value for the quarter at a $3 billion total together.

Yet observers agree this is not cause for concern. “I believe the M&A environment in Africa today is more conducive and is much stronger in terms of value and volume. We expect both value and volumes to continue to grow,” Vikas Papriwal, KPMG Partner and Head of Transactions & Restructuring, said.

Vinjeru Mkandawire, M&A reporter for London-based Mergermarket,

2013 saw the best annual total of announced M&A transactions involving Sub Saharan Africa since 2010, but Q1 2014 was the lowest-valued quarter in five years. KPMG’s Vikas Papriwal and Mergermarket’s Vinjeru Mkandawire share their thoughts on M&A this year

Vikas Papriwal

page 42-45 M&A report.indd 42 5/5/14 11:17 AM


agrees. “I think that with the African M&A deals in general, the values do tend to fluctuate depending on the deals. So last year a lot of the deal values were coming out of the really high-value energy and mining deals which were coming out of the likes of Mozambique and accounted for a significant amount of the values. You had a lot of investment being poured into tiny minority stakes and quite large projects. But in terms of the number of deals, that is still looking positive,” she said.

“Obviously [Q1 was] a slow quarter, but activity does seem to be picking up, not just in energy, mining and utilities, which is traditionally the strongest sector, but we’re also seeing more diversification and growth in the financial services, which are in the spotlight this moment,” Mkandawire added.

The rising middle class and secTor growThEnergy, mining and utilities remained the most active sector with deals valued at $1.6 billion, or 26.2 per cent, in Q1. Yet even the energy boom in Mozambique (the most active country in M&A deals for 2013) failed to reach last year’s Q1 value of $5.5 billion. Positive growth was found in the consumer sector, where 15 deals valued at $0.8 billion drove a 700 per cent increase on Q1 2013’s numbers. The technology sector also started the year positive, with a 71.4 per cent increase in investments compared to Q1 2013.

The consumer sector is expected to continue growing, largely due to the rising middle class in many African countries. “The region’s economic prosperity (and also M&A) is complimented by an increasing ‘middle class’ which have more than tripled in population during the last 30 years. The World Bank predicts

Africa’s middle class to grow from 355 million in 2010 to 1.1 billion by 2060, making it the world’s fastest growing middle class. The continent’s growing consumer class is central to its economic fabric and fuels Africa’s strong appetite for basic infrastructure, natural resources, agriculture as well as consumer goods,” Papriwal said.

“Energy will play a dominant role in the future. A growing middle class coupled with a rise in consumption will also drive the growth of the FMCG industry in the Africa region.

Infrastructure is showing robust growth with—$100 billion of investments required annually by 2020 for Africa to meet the UN’s Millennium Development goals. Although this has largely been restricted to a few countries, it is yet to become an all-encompassing pan-African growth story, with activity still being restricted to certain pockets. Going forward, investments in consumer-driven goods and services, including telecommunications will shape the African growth story,” he added.

There have been a lot more regional players, especially in the telecoms market—it is a fast-growing market and people are taking advantage of that, looking at options and opportunities which are beyond their own borders

AFRICA’S FOREIGN DIRECT INVESTMENT FLOWS

FDI f

low

s (U

S$ b

illio

ns) Africa FD

I as a % of w

orld total

Western Africa Northern Africa Central Africa

2010

44

2011

48

2012

5050

40

30

20

10

0

2.9%

2.4%

1.9%

Total Africa as % of world Eastern Africa Southern Africa

cont. on pg44

page 42-45 M&A report.indd 43 5/1/14 4:29 PM


M&AFOCUS

Papriwal said other sectors set for increased M&A and private investment are healthcare and telecommunications. “Healthcare is a massive opportunity today—we know that there are funds that have been set up for healthcare globally and there really is a massive opportunity to harness this.”

There have been several regional players, especially in the telecommunications market fuelling growth and investors are keen to take advantage of this and explore options and opportunities extending beyond their own borders.”

Mkandwire said, “Financial services is one that we’re watching pretty closely…there’s a number of deals that we are following in the financial services sector, and that is a potential area of growth outside of energy, mining and utilities.” She highlighted investments from Atlas Mara, Ecobank and Paris-based Amethis Finance, as well as a potential acquisition of Kenya-based Faulu Microfinance by Old Mutual, as indicators of sector growth.

“There is also a lot of investor interest at the moment in the consumer foods and agribusiness sectors as well. It’s still early days and largely in its infancy, but that is one of the sectors tipped to be seeing a lot of growth in the next few years if not this year,” she said.

The most targeted nation by value during 2013 was Mozambique, accounting for 31 per cent of activity due to three multi-billion dollar deals in the energy & mining sector. The next most targeted nations were South Africa (30 per cent) and Nigeria (15 per cent). South Africa and China were the most acquisitive nations, together accounting for 46 per cent of all deals.

Bank of America Merrill Lynch took first position in the ranking of announced M&As involving Sub Saharan Africa with $5.5 billion in service fees for 2013.

M&A HiGHliGHTS:

nIn Q1 2014, M&A targeting African companies dipped 66 per cent to $2.8 billion (38 deals) compared to Q1 2013 ($8.7 billion, 49 deals) and Q4 2013 ($13 billion, 87 deals)

nFollowing two consecutive double digit billion-dollar quarters in 2013, Q1 2014 dropped 77 per cent from $13 billion in Q4 2013

nEnergy, Mining & Utilities remained the most active sectors with deals valued at $1.1 billion, but dropped 80 per cent compared to Q1 2013 ($5.4 billion). Its followed by Telecommunications ($490 million, one deal), Real Estate ($419 million, two deals) and Consumer ($383 million, eight deals)

Data via Mergermarket

M&A TREND

Valu

e of

Dea

ls (U

S$ b

illion

s)

Q1 M&A Value Q2 M&A Value Q3 M&A Value Q4 M&A Value2007 2008 2009 2010 2011 2012 2013 2014

100

90

80

70

60

50

40

30

20

10

0

Mergemarket Q1 2014 trend report

12.6

12.9

4.0

8.0

6.6

13.4

21.6

14.8

15.9

10.0

19.9

12.1

7.0

8.2

12.8

15.4

7.810.0

14.620.0

34.6

19.9

13.1

5.3

25.3

19.8

8.8

12.7

6.3

cont. from pg43

page 42-45 M&A report.indd 44 5/1/14 4:29 PM


InvestIng In the future

Vinjeru Mkandawire, Mergermarket

With the rising middle class in a lot of these countries that we’re talking about, do you see there being more interest in say, service sectors and technology investment in the future?“We are starting to see a pick-up in media and technology deals in some of the more established economies such as South Africa and Kenya, and I think that we will see a lot more of these deals, particularly as local players look to expand regionally, because you have quite a few large players in Kenya and South Africa providing say, wireless and broadband services, and they’re looking to expand quite rapidly within their regional focus within East Africa or Southern Africa.

“I’d say that with the population growth, particularly in the cities and the rising middle class, we’re likely to see a lot more of these deals—a lot more diversification in general away from the extractive industries and the infrastructure sector.”

Could that possibly change the regions of investment and M&A away from energy-rich locations, or not anytime soon? “I think that traditionally countries such as Nigeria, South Africa and Kenya, and even the North Africa countries such as Morocco and Egypt, have traditionally acted as gateways for investors looking to invest in the continent. But in terms of expansion, they would definitely be looking to go into some of the other countries. I think that we will continue to see these stronger economies acting as a starting point for investors. Where we’re beginning to see diversification in terms of countries is in the trend of African companies looking to expand regionally through M&A, and they’re doing that more aggressively, and have been in the past year. That’s where a lot of the diversification regarding investment into other countries will come from.

“But having said that, the level of investment in Mozambique came as a surprise last year—we didn’t see that level of investment going into Mozambique in previous years, and the numbers did jump quite dramatically for Mozambique last year. There’s still a lot of ongoing oil and gas operations and discoveries in East Africa, so you could see a number of new countries in the spotlight in the same way that Mozambique performed last year.”

As far as FDI from Europe, Asia and the U.S. versus intra-African investment, do you see that shifting in the future?“I think that it has begun to shift already in favor of Asia, and that we will continue to see that; a lot of the deals particularly in the extractive industry at the moment that involve European companies have seen the European countries exiting. We’ve also seen a lot more Asian countries moving into the region—countries such as China, India and Japan have become a lot more aggressive, and they’re investing heavily in Mozambique at the moment, and some of the Japanese countries are looking to expand further into the Eastern part of African countries such as Zambia and the DRC.

“As far as investment in the energy sector, the sector has been dominated by non-African countries. One exception I’d say is Nigeria which could see a rise in activity from indigenous bidders due to all of the assets sales and investments.”

Vinjeru Mkandawire

page 42-45 M&A report.indd 45 5/5/14 11:18 AM

AWARDS


And the winners are…

Bank of Khartoum, which also scooped “Best Corporate Bank (Africa) in the Islamic Business & Finance Awards last year, came away with two recognitions in the first East African

Banking Awards for its leading Retail and Microfinance services. “We are extremely delighted with the recognition. We are known to be the market leader in Sudan and now are acknowledged for the same regionally,” Kashif Naeem, Head of Retail, SME and Microfinance for Bank of Khartoum, said.

“We launched Retail Banking from scratch and in the shortest span of time we are known to be the market leader and number one Retail Bank in Sudan, offering full Islamic products and services.”

Shari’ah-compliant Microfinance was launched in 2009, three years after Retail Banking’s establishment and rapid success. “We are not only know as a center of excellence in Sudan, but also in the countries where Islamic Microfinance is gaining popularity,” Naeem said as he outlined plans for BOK to partner with the Islamic Development Bank (IDB) to establish an independent Microfinance institution in Sudan.

“Both awards are complement to our achievements and we are proud to receipt such awards and getting recognition at regional level,” he said.

The annual Banker Africa Awards are continent-wide programme open to all banks and financial institutions in Africa. As always, the winners are selected by registered readers of CPI Financial’s products. This East African Banking Awards attracted 6,789 voters to the website to distinguish the best and most innovative banks in the region. The financial institutions selected by the community this year are:

Best Retail BankBest Microfinance Bank

Bank of Khartoum

Chase BankBest SME bank As the ‘relationship bank’ of Kenya, Chase

strives to connect its customers with the most accessible SME bankers and day-to-

day banking services. Its innovative focus on the SME sector has led Chase Bank to offer tailor-made SME financial solutions, including specialised current account, term deposits, loans, foreign exchange and wealth management services, as well as capacity-building for entrepreneurs through the Chase Bank website.

Kenya Commercial BankBest Corporate Bank

Coming off of a strong year in 2013 with reported net profits of more than 17 per cent, Kenya Commercial Bank (KCB)

leads the way in Corporate Banking products in six East African countries. KCB has gained recognition for its varied offerings, from short- and long-term financing to syndicated term loans and corporate bonds. “Our blend of regional resources, local sector and country knowledge enables us to provide a global and fully integrated coverage,” the bank promises.

I&M BankBest Diaspora Offering

A s Diaspora Offerings have become more popular, I&M Bank continues to innovate its services to best serve customers abroad through investment management services, mortgage

plans, insurance options and low-cost remittances channels. I&M Bank’s easy and reliable online banking, as well as its wide scope of both personal and business-oriented Diaspora offerings make the bank a frontrunner in developing Diaspora Banking in for the East African region.

CEO Duncan Kabui said, “We are indeed humbled by the confidence shown by our customers as we receive the Award for the Best SME Bank. We have a simple promise which is to build and partner with SMEs from the ground up. We have walked the journey with our customers and we remain steadfast in our promise to grow these SMEs into the next corporate giants of our country. Our commitment to promoting women in business continues unabated. We are especially keen on providing the woman entrepreneur access to finance.”

page 46-47 East Africa Banking Awards.indd 46 5/5/14 11:20 AM


Standard Chartered Bank Tanzania

National Micro-Finance Bank

Best Foreign International Bank

Best Commercial Bank

A s an international bank with 1,600 branches, offices and outlets in 70 countries across the

globe, including a presence in 15 African countries, Standard Chartered has been serving Tanzanian customers since 1917. “We were the first bank to introduce products and services that have been tailored to the Tanzanian market,” Standard Chartered said, highlighting its personalised banking services, Visa debit cards, credit facilities, international trade accounts, pay-as-you go accounts, personal installment loans and much more. “We’ve also been working with the government to promote the economic growth of the country and have re-launched SME Banking with more flexible collateral and pricing requirements.”

As one of the largest commercial banks in Tanzania, National Micro-Finance Bank (NMB) is unsurprisingly a leader in providing business banking services to small local companies, large multinational customers, and businesses in between.

Its commercial services range from microfinance and agro-loans to trade finance and treasury products for large corporations, making NMB well-equipped to handle the fast-changing Tanzanian market. “Within the Tanzanian economy, small- and medium-sized enterprises are the engine for future growth. As such, NMB has a specific focus on the needs of these customers and provides services to them through its large network of branches all over Tanzania,” NMB said.

Best Islamic Bank

Best Agri Bank

Abu Dhabi Islamic Bank Sudan

A s a branch of one of the leading Islamic banks in the United Arab Emirates,

it seems natural that ADIB Sudan, opened in 2012, has won recognition for offering superior Islamic products and services. ADIB was the first UAE-based institution to receive a banking licence in Sudan, and has since facilitated a stronger bond between the Middle East and Africa with its variety of Shari’ah-compliant wealth management and corporate banking services. “We believe our operations in Khartoum will rapidly become a key strategic element of our international strategy,” Abdullah Al Shahi, Head of International Expansion at ADIB, said on the establishment of ADIB Sudan.

Equity Bank

T he story of Equity Bank’s exponential growth since 2008 is a testament to the strength

of the bank’s products and strategy, particularly its dedication to agricultural financing and loans. The bank’s commitment to promoting inclusive growth and serving the low-income population has led it to reach more than eight million customers and subsidiaries across East Africa. Equity Bank’s six loan options in the agriculture sector encompass options and needs for small-scale commercial farmers, agro-dealers and manufacturers, agricultural-based entrepreneurs and cooperatives, offering much-needed support to one of the most vital economic sectors for the region.

Family BankMost Innovative Bank

W hat makes a bank innovative? For Family Bank, its unique banking accounts for all types of customers coupled with a bank strategy of community development. The Kenya-based bank offers innovative

account services, from the Mdosi Junior Visionary Account for children up to 12 years old to the Tujenge Account, specifically designed to aid regular income earners to reaching financial management goals. It has also led in CSR initiatives in school sponsorship and talent development programmes. Family Bank’s dedication to innovation has led the bank to grow from only one branch in 1985 to more than 70 branches countrywide.

page 46-47 East Africa Banking Awards.indd 47 5/5/14 11:20 AM


SPECIAL BANKINGREPORT

The latest Afrobarometer report indicates newfound hope and potential for growth in the wake of national crisis, while aid groups renew commitment to development

National Assembly of Mali (Credit: African Development Bank)

Budding optimism in Mali

A December 2012 A f r o b a r o m e t e r survey—in the midst of the roughly year-

long national upheaval—found that three quarters of adult Malians feared the country was moving in the wrong direction. Just a year later, a follow-up

survey reveals fresh hope for the future: in December 2013, two thirds of all Malians reported feeling that the country is headed in the ‘right direction’.

The dramatic turnaround can be explained largely through increased economic and political stability as well as an improved security situation. The

January 2012 Touareg-led rebellion in the north and subsequent coup d’etat against the elected government led tens of thousands to flee their homes and ground trade outside of the mineral sector to a virtual halt. In the rebellion’s wake, Mali staged successful parliamentary elections and restored national authority by November 2013. However, while public opinion has turned around, fears and challenges remain. Afrobarometer indicated that most Malians still worry primarily about political instability and food security.

“Popular assessments of current economic performance in Mali are cautious and sober,” Afrobarometer said. In December 2013, almost as many Malians told Afrobarometer they

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saw improvements in the national economy over the previous year (42 per cent) as saw setbacks (45 per cent).

The services sector, particularly tourism, was hard hit in 2012, but the value of agricultural and gold production increased by 14 per cent and nine per cent respectively. The overall economy was forecast to grow by 5.1 per cent in 2013 after contracting by 1.5 per cent in 2012, but actually grew by 1.7 per cent, according to the IMF. However with the restoration of political security and a new elected government, aid programs have been renewed and expanded. In 2013, the country received a rapid credit facility of $18 million from the IMF, the restitution of suspended US assistance, and a pledge of more than $8 billion from the World Bank and European Union.

Private investment optimism has also improved, with the US-based Millennium Challenge Corporation (MCC) recently announcing a complementary investment of $252.9 million in Mali’s Alatona Irrigation Project to build irrigation infrastructure.

“Though much smaller than the construction in dollar terms, these complementary investments will

mean the difference between a well-maintained system that operates for decades and a short-lived one that falls into disrepair within a few years,” the MCC said.

The financial sector could grow this year as well. The Islamic Corporation for the Development of the Private Sector (ICD) recently announced that Senegal-based Tamweel Africa Holding, joint-owned by ICD and Turkey’s bank Aysa, has launched a feasibility study to establish an Islamic bank in Mali.

Morocco also made moves recently to strengthen its relationship with Mali through a B2B and education exchange partnership. The Moroccan Centre for Export Promotion (Morocco Export), the Office of Fairs and Expositions de Casablanca (OFEC) and the Chamber of Commerce and Industry of Mali (CCIM) held two meetings in April to work on several collaborative projects. In 2015, the two countries plan to stage Moroccan Business-to-Business Missions (B2B) in Mali, geared towards the construction and public works, information and communication technology, and textile and leather sectors.

MALI AT A GLANCE Population: 16 million (2013)

GDP per capita: $1,100 (2013 PPP)

Ranked 155th of 189 countries in the World Bank Group’s 2014 Doing Business Report

Currently there are 12 banks in Mali, including a development bank and branches of Ecobank, Groupe Banque Atlantique and Bank of Africa. Mali is ranked as one of the 10 poorest countries in the world and is a major recipient of support from the World Bank, USAID and the African Development Bank. While the economy is largely agricultural dependent, mining—primarily gold and phosphate—is a potential source of wealth.

Yet the country has slid in all categories of The World Bank’s Ease of Doing Business assessment from 2013 to 2014, from starting a business (136 to 119) to paying taxes (150 to 170 following a reduction to the corporate income tax rate).

“Mali’s performance under the economic program supported by the IMF’s ECF is on track, with the exception of tax revenue, which, in 2013, was five per cent lower than programmed. The tax revenue underperformance is explained in part by lower gold prices and weaknesses in tax administration,” the IMF said following a March 2014 mission to Mali.

“During 2013, Mali emerged from the political and security crisis of 2012. The manufacturing and service sectors rebounded by six and nine per cent, respectively, owing to an improvement in the security situation, the success of the presidential and legislative elections, and the resumption of donor support,” it said.

MoBILE MALI

Mobile money has grown popular in Mali, and in an effort to offer more complex banking and financial services, Orange Mali and MFS Africa recently partnered to launch an insurance program for pregnant women.

Orange Mali has had a significant impact in Mali since it entered the market in 2012 and extended its international money transfer services, with the help of MFS Africa, in 2013. The company, the largest mobile money provider in the country, currently serves more than eight million Malians and claims that with its nearly 500 employees and infrastructure operations, that it has generated 31,000 indirect jobs and contributed an estimated three per cent to Mali’s GDP.

“The extension of the service to Mali, several months ahead of schedule, proves that simple, convenient and affordable money transfer services meet a real and urgent need,” said Dare Okoudjou, Chief Executive Officer of MFS Africa.

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OPINION


F igures recently released by Thomson Reuters show fees for investment banking services in Sub Saharan African totalling

just $34.9 million during the first quarter of 2014, marking a 67 per cent decline on year-ago levels and, what’s more, the lowest first quarter total for fees in the region since 2002 (p. 40).

On the basis of those numbers you might think the headline unduly optimistic. Yet the signs are there that activity is set to pick up. For example, Bloomberg reported Credit Suisse deploying investment bankers to woo African entrepreneurs, offering services from capital raising to trade finance and mergers and acquisitions advice.

Admittedly, Credit Suisse is withdrawing from Angola, the Democratic Republic of Congo and

to investors, product innovation, and technology to support economic growth and strengthen financial systems in Africa’.

There’s been a flurry of activity, with three significant news items coming hard on each other’s heels. First, Atlas Mara reached agreements to acquire a majority of Botswana-based BancABC and take over ADC African Development Corporation AG (ADC). These deals, said Atlas Mara, would create a ‘well-positioned banking group capable of offering a broad range of banking products, including corporate banking, treasury services, retail and SME banking, asset management and stock broking’.

Following that announcement came the news that Diamond had hired John Vitalo for the post of CEO of Atlas Mara. Vitalo joins the new institution from Barclays where he had held a number of senior managerial positions, including, most recently, as Chief Executive Officer, Middle East and North Africa since 2009. In the four years prior to that, based in Johannesburg, he had been responsible for building and leading Absa Capital, the pan-African investment bank.

At the same time Atlas Mara revealed it had signed a Memorandum of Understanding with the Government of Rwanda to pursue the privatisation of BRD - the commercial arm of the Development Bank of Rwanda. As Ashish Thakkar summed up events it has been ‘an exciting few weeks for Atlas Mara’.

other African markets to cut costs but it is increasing its activity elsewhere with South Africa ‘at the top of the list’.

Indeed, South Africa is also becoming a hot spot for back office function too; financial services careers website eFinancialCareers reports the country is emerging as the place to base investment banks’ product control functions citing the examples of Barclays, which is in the process of shifting its fixed income product control functions to Johannesburg, and Standard Chartered, which is also moving its business to Johannesburg.

However, those aren’t the only straws in the wind. Note especially the comeback of Bob Diamond, the controversial former head of Barclays Bank, as one of the founders of Atlas Mara. On 17 December 2013, Atlas Mara Co-Nvest Limited raised $325 million through an initial public offering on the London Stock Exchange. It is also being backed by Ashish Thakkar, the 32-year-old head of Mara Group, a $1 billion conglomerate with businesses in 19 African countries.

Atlas Mara’s avowed intent is to ‘create a financial institution that provides leadership, liquidity, access

The coming boom in investment banking

Managing Editor - CPI FinancialRobin Amlôt

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