Hard-hit bankers pin hope on Africa
No place better than the continent to bring together savers and investors, Citigroup says
Africa may prove to be a bright spot for an investment-banking industry that is in the doldrums globally as expanding economies, combined with young populations and a hunger for new technology, boost equity sales, says Citigroup. “The role of investment banking … is to bring capital to where it’s needed and bring together savers and investors,” Miguel Azevedo, head of investment banking for the Middle East and Africa, said at the World Economic Forum meeting in Cape Town earlier in September.
Africa may prove to be a bright spot for an investment banking industry that’s in the doldrums globally as expanding economies, combined with young populations and a hunger for new technology, boost equity sales, according to Citigroup.
“The role of investment banking … is to bring capital to where it’s needed and bring together savers and investors,” Miguel Azevedo, head of investment banking in the Middle East and Africa, said in an interview at the World Economic Forum meeting in Cape Town earlier in September.
“And there is no place better than Africa, where that is absolutely critical.”
He was speaking just as industry monitor Coalition reported that investment banking revenues plunged across the developed world in the first half of 2019, weighed down by slowing economic growth and geopolitical tensions, mainly the US-China trade dispute.
The sector — which helps businesses raise capital, deals in securities such as equities and bonds, and administers corporate actions such as mergers & acquisitions for a fee — has been on a structural decline since the global financial crisis a decade ago. Revenue has come under pressure from a slew of regulations meant to make it safer.
One of Citi’s main competitors, Deutsche Bank — once the world’s biggest bank by assets — emerged as one of the biggest casualties, announcing a plan in 2019 to shut its stock-trading business and retreating to its roots, focused on stable businesses serving clients in Germany and the rest of Europe.
While shocks such as the enormous devaluation in Angola that ate into Shoprite’s profits can dim sentiment at times, there’s more optimism about investment banks’ prospects in Africa as more companies seek to tap a growing middle class and technology advances that are creating new customers for companies providing financial and other services.
In its 2018 Africa Capital Watch report, PWC said activity levels in equity capital markets failed to sustain their 2017 levels, dropping in volume and value by 25% and 40%, respectively, on an annual basis.
That was despite landmark deals such as the $819.3m listing of Vivo Energy on the JSE and the London Stock Exchange (LSE), which it said was the largest Africa-focused initial public offering (IPO) on the LSE since 2005.
“If you have a short period analysis, you can go badly wrong,” Azevedo said.
“If you go to a country and right after you invest there is a devaluation, you get hit. But over the long term these bumps along the way will be less relevant.
“The big multinationals are investing in Africa as they always have.”
He cited Citigroup’s involvement in the 2019 IPO by payments processor Network International to highlight the attraction of companies that are either based in Africa or do a significant amount of their business in the region, which in turn make their stock attractive to investors. “When they did the IPO, their African business was a key attraction,” he said.
While Africa accounts for just a quarter of its business, with the rest in the Middle East, the continent represents the fastestgrowing area.
At its initial listing in London, the Dubai-based company raised £1.1bn, with its shares jumping more than a fifth, according to Bloomberg data.
Mastercard was one of the biggest subscribers in a deal that valued the company at more than £2bn.
Citigroup helped it place an additional $700m of shares in its latest offering.
“This tells you that investors are there. In this transaction, for example, investors validated the attractiveness of Africa.”