Investment banks can drive growth in Africa Sponsored content brought to you by Absa’s Corporate & Investment Bank
Bullish about growth from countries like Ghana, SA, Zambia and Kenya
Africa is alive with opportunity to deliver growth. But the role of financial institutions in securing that growth cannot be underplayed, says Mike Harvey, the co-CEO of Absa’s Corporate & Investment Bank (CIB).
He says corporate and investment banks operating in Africa can drive rapid economic growth and human development — a necessary precursor for addressing some of the continent’s most critical development issues.
Harvey answers some key questions.
Which regions and sectors are growth areas in Africa for businesses looking to expand into the continent? An enormous infrastructure gap makes progress very challenging, and helping to build the infrastructure required to fuel economic growth provides good investment opportunities.
There is significant opportunity in working with governments, regulators and investors to create policy systems and invest in infrastructure, technology agriculture and other labour-absorbing avenues ofgrowth. Providing the capacity to generate electricity can stimulate far-reaching economic growth and viable bankable projects for investors.
We remainbullish about growth from countries like Ghana, SA, Z ambia, Kenya and Tanzania. How can an investment bank like Absa CIB practically help businesses that want to expand into Africa? We provide a full suite of services from commercial banking, advisory services, mergers & acquisitions (M&A) and capital raising. Increasingly the work we are doing on the continent highlights the strength of the Absa franchise and our ability to use our balance sheet to support clients’ equity-raising strategies. It also demonstrates our ability to leverage expertise across geographies including the UK and SA and our ability to execute complex, multi-product transactions and crossborder M&A in the wider Europe, the Middle East and Africa regions.
Plans to expand to international jurisdictions and pursue alternative avenues for global coverage and distributionwill see Absa CIB officially launch offices inLondon in
September and later in New York and Asia.These moves provide opportunities for clients seeking access to offshore financial markets and those seeking to invest in Africa. Our client list includes global and Africa-based multinationals, public sector and institutional clients as well as financial institutions and global development organisations.
Strategic partnerships and investments are being pursued on the continent, particularly in West and North Africa, to drive local execution and expand the bank’s footprint. What does the recently launched Absa Africa financial markets index measure and how will it help potential investors in Africa?
The Absa Africa financial markets index, which measures the level of development infinancial markets in 17 African countries, has had a significant impact on market development, oversight and transparency.
The indexwas launched alongside the IMF meetings inOctober 2017 and thereafter inkey territories on the continent.
The countries are ranked according to a number of measures, ranging from market depth and regulatory environment to legality and enforceability of agreements.The objective is to focus the attention of policymakers on the structural reforms needed to transform and accelerate the development of financial markets. Market players and stakeholders also use the index to drive discussions and accelerate reforms in the financial markets in a manner that is structured with a uniquely African lens. Many agree that the benefits ofdeveloping African financial markets include the potential reduction of the cost ofborrowing and the ability to mobilise capital efficiently. What was the most surprising find from the data the index measures? The index survey report reveals a couple of interesting findings.For example, the top five self-ranked countries on market efficiency do not include SA, Namibia, Botswana and Kenya, although the Official Monetary and Financial Institutions Forum’s independent findings showed a different ranking, with SA coming first. We also noted that only two out of the 17 markets have truly free-floating currencies, which means there is more work required for countries to move to more flexible exchange rate regimes, as most investors worry greatly about foreign-exchange convertibility, gap risk, and price transparency.
There has been some recent positive macroeconomic achievements by countries like Ethiopia and Rwanda relative to their peers,but these countries actually scored very low in the index and therefore a focus on financial market development couldbode well for them in terms of accelerating development. Lastly, the top five countries with the most developed financial markets are all from the Southern African Development Community. Do you think investors who have ventured into frontier African markets have been rewarded for the risks they have taken, and how much more room is there for investors to earn returns that outstrip those of less risky developed and emerging markets?
Notwithstanding the constraints of doing business on the continent, there is boundless potential.There are countries in Africa where growth rates are catching up and sometimes exceeding those of other emergingmarket counterparts. Investors do, however, need to have a long-term vision and a healthy dose of patience.
There is rising global demand for the natural commodities found in Africa. International economies need the oil,gas and other natural resources found here.However, commodity markets have been challenging and volatile in recent years and this has affectedgrowth.
Despite this, the appetite from international investors continues to grow because large, youthful populations coupledwith improving infrastructure and increased ease of doing business has deliveredgrowth. African GDP growth of over 5% is still expectedbecause of macroeconomic policies which are designed to stimulate job creation and consumer consumption.