Africa needs strong domestic corporate banks to drive development
Around the world, banks form the foundations of any economy by providing critical services that enable payments, working capital to grow businesses, finance to buy assets, interest on savings and investment accounts, and more. However, when looking at the sector, we must remember that banking isn’t just about numbers and profits, it’s also about improving lives and communities.
Although recognised for its importance in providing financial services like cash management, payment processing, and hedging structures to a diverse clientele of small and mid-sized enterprises to large corporations, the greater impact of corporate banks is often overlooked. This is particularly true for domestic African corporate banks that play a significant role in empowering people, businesses, and communities.
While they, of course, meet the financial needs of corporate entities, these banks also help to deepen the financial development of the region, strengthening financial markets to build an environment that is more attractive to investment. Ultimately, corporate banks facilitate long-term economic growth by enhancing the ability of firms and businesses to invest in long-term and seemingly risky initiatives.
While corporate behemoths and global titans often take up the spotlight in the banking world, homegrown African corporate banks can provide substantial benefits to domestic economies. By leveraging their deep knowledge of local customers and the local environment, along with their expertise of financial systems across the continent, domestic pan-African banks are already driving transformative financial and social impact. They’re doing this by providing finance that would most likely have been declined by someone “sitting far away” as well as ensuring a quick turnaround which enables faster growth.
And, as economic growth in sub-Saharan Africa has slowed to 3.3 percent in 2023 compared to four percent in 2022, ensuring that domestic corporate banks on the continent are agile, resilient, and innovative, will be key to the growth and expansion of African economies.
Driving growth in the entrepreneurship ecosystem
The continent’s startup and entrepreneurship ecosystem is growing rapidly, even going against global trends of a slowdown, with African startups raising approximately $1.5 billion in the midst of the pandemic outbreak in 2020, over $4 billion in 2021, and an estimated $4.5 billion in 2022.
Many entrepreneurs on the continent, particularly those in the SADC region, are still faced with significant challenges, while a large portion of emerging entrepreneurs and small businesses continue to fail for a variety of reasons including the inability to raise the capital to scale their businesses. However, a stronger presence of local corporate transactional banks will support the continued growth of Africa’s entrepreneurship ecosystem by improving access to funds through channels such as business loans and lines of credit.
For entrepreneurship to thrive, more disciplined financial management is required. And, because domestic corporate banks understand the challenges and complexities of running a business in the local market, they can be relied on as trusted advisors helping entrepreneurs to navigate areas such as business planning, market analysis, and mergers and acquisitions.
Fostering increased cross-border trade
According to the World Trade Organisation, global trade volumes and value have ballooned in recent years. In fact, the value of world merchandise trade was recorded at $25.3 trillion in 2022 while the value of commercial services trade sat at $6.8 trillion and digitally delivered services exports were estimated to be worth $3.82 trillion in the same year. Moreover, trade between Africa and the international community has grown exponentially in recent years.
Intra-African trade, however, continues to lag behind global trade growth trends. The United Nations Conference on Trade and Development (UNCTAD) notes that intra-African trade stands low, at just 14.4% of total African exports. But, there remains a significant appetite for cross-border trade as indicated by the fact that informal cross-border trade on the continent is a source of income for 43% of the population in Africa.
By facilitating the growth of African corporate banks on the continent, we will in turn be able to increasingly facilitate internal trade across Africa by easing financial barriers and capitalising on the significant knowledge of the regulatory landscape of markets in the region that these banks possess. More than this, domestic corporate banks will help to reduce the risk of cross border trade.
Enabling enterprises to scale sustainably
By simply ensuring the security of finances and financial services to businesses and enterprises across the continent, African corporate banks will enable businesses on the continent to invest in their growth, scale up as needed, and hire more people resulting in reduced unemployment for the fastest growing population in the world. Essentially, by enabling the growth of small and medium-sized businesses, this will in turn lead to the creation of more job opportunities, resulting in the upliftment of millions of people out of poverty, greater social cohesion and economic growth, and ultimately position Africa as a key part of the global labour market.
Ensuring the ease of doing business
The corporate banking sector is foundational to improving the credibility of businesses. At the same time, corporate banks have a role to play in opening African businesses to greater investment opportunities while reducing the risk of doing business on the continent due to weak currencies, political instability, inclement weather conditions and soaring unemployment rates. Essentially, these banks ensure the ease of doing business in Africa by making financial transactions easier and enabling businesses to adapt to rapid changes.
Be that as it may, the success of African corporate banks is heavily dependent on their flexibility and agility as well as placing a strong emphasis on service and authentic customer relationships. Purpose-driven leadership and robust strategic partnerships are key elements needed within domestic banks, to drive tangible societal change and a positive impact on communities. Through strategic partnerships, African corporate banks will be able to benefit from the expertise, management abilities and best practice policies of those they collaborate with. As such, it’s clear that an unwavering purpose is not only central to African financial institutions achieving audacious growth, but also the development of Africa beyond a resource-rich continent and into a new era of prosperity. *Jaco Viljoen is Chief