Africa still a darling for local banks
Long-term prospects make a compelling case for investment
THE “Africa rising” narrative that sparked a surge in optimism about the continent’s investment prospects appears to be running out of steam as the reality of tough economic conditions — and in some cases hostile political environments — sets in.
Oil-dependent Nigeria, the largest economy in Africa, is struggling to boost economic growth as oil prices remain under pressure internationally. Poor infrastructure, ongoing problems with power supply and the battle to bring Boko Haram under control have undermined the country’s attempts to revive its economy, which is projected to grow at just 0.1% this year. In the past three years Nigeria’s GDP growth has averaged 0.18%.
The problems are not limited to West Africa. In Central Africa, the Democratic Republic of Congo government has cut investment in infrastructure in response to the country’s falling oil revenues. A power struggle in which Joseph Kabila — who has clung to the presidency since 2001 — is fighting to remain the country’s head also poses a threat to business confidence. The DRC, which lies in the path of the Central African copper belt, has been hit by a doubledigit decline in output of copper and cobalt, both major contributors to the economy.
However, some of South Africa’s banks remain convinced that Africa’s growth prospects make a compelling case for long-term investment.
Nedbank has partnered with Ecobank to tap into the broader African market. Barclays Africa, which also has a presence in African markets, has been reassuring stakeholders on the continent that it remains committed to growth in Africa after parent company Barclays Plc announced it would be reducing its stake in the bank.
FirstRand has set aside R7.5-billion to grow its footprint in East and West Africa by acquiring commercial banks in those regions. At the company’s results presentation, CEO Johan Burger said there was potential for great returns.
“We understand the short-term issues and commodities cycles. We understand that there are always going to be political changes in all these countries. But we want to invest in those countries because the growth rates are some of the highest in the world,” he said.
Standard Bank, which has been operating in Africa longer than the other banks, pulled out of emerging markets outside of Africa, opting to focus on increasing its footprint in Africa. Earlier this year the group acquired a licence in Ivory Coast, where growth is forecast at 7% over the next three years.
East African countries managed to boost their economies without relying on commodities, and growth is projected to increase by more than 5% within two years. The boom is largely driven by services, agriculture, manufacturing and public spending on infrastructure.
Kenya, where Volkswagen recently opened up an assembly plant, thereby building capacity for job creation, is an example of an East African economy shifting in this direction.
There is no shortage of arable land in countries such as Angola, South Sudan and Nigeria, yet they remain dependent on imported food. A sound agricultural policy could help these regions reduce import volumes while creating jobs in rural areas, said Standard Bank joint CEO Ben Kruger.
Telecommunications and mobile penetration, which could help extend financial services to a largely unbanked population, also has the potential PERIL: A soldier walks past a checkpoint in Bama, Borno State, Nigeria, in August. The battle to bring Boko Haram under control has undermined the country’s attempts to revive its economy to unlock economic prosperity.
FNB CEO Jacques Celliers said ensuring brand loyalty and continuity was essential for any business that wanted to survive long enough to share in the continent’s projected success.
“You can’t run in and out according to cycles. You can’t disrupt your customer base that you’ve worked so hard to acquire, especially if you haven’t reached critical scale,” he said.
Strategic focus can carry a business only so far and Kruger said it was important that African countries set themselves up to appear attractive investment destinations. Good governance, sound financial markets and a concerted effort to improve infrastructure are ways governments can meet businesses halfway.
For Capitec, the business model of which depends on scale, edging into a market like Nigeria might seem a smart move.
However, low debt penetration levels and the absence of a credit bureau service were barriers for Capitec, which relied on unsecured lending, CEO Gerrie Fourie said this week.
“If you’re looking at retail banking in Africa, you need an IT system and a credit bureau. You need electricity and fixed lines,” he said.
A comparison of Standard Bank’s South African debt book with those for the rest of Africa puts the situation into context.
In South Africa, the bank’s mortgage book is about R300-billion. Vehicle and asset finance is R100-billion. The credit card book stands at R40billion. That’s a total of about R440billion, whereas the combined value of the loan book across the bank’s operations outside of South Africa is R60-billion.
Kruger said: “All the things we take for granted — such as having a fully fledged mortgage market and a functional vehicle finance market — are not easy to duplicate in underdeveloped economies. Lending is not that simple in these environments and that’s why they have such low debt penetration levels.” Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.sundaytimes.co.za
The growth rates in African countries are among the world’s highest