Banking on Africa

 

Africa is the market that the entire world is presently targeting for tangible growth opportunities. It is the new frontier for investment, trade and technological advancement. The continent is endowed with abundant natural resources, skilled manpower, fresh water bodies and fertile agricultural land.

Recent discoveries of oil and gas deposits, as well as commercially viable minerals, have boosted Africa’s economic worth and added to the importance the world has attached to the continent as an affordable alternative investment destination of choice.

The discovery of new oil deposits in Kenya and Uganda – with the potential to produce 500 000 barrels a day by 2018, according to estimates – by London-headquartered Tullow Oil have led investors and multinational corporations scrambling for the African space.

We are seeing investors from the West and the Far East scouting for opportunities to buy into existing businesses on the continent or establish ventures in hitherto untouched fields, such as oil exploration and mineral extraction, in countries that have not been on anybody’s radar in recent decades.This new trend is beginning to reawaken the continent in terms of its untapped potential and is slowly accelerating the strategic revival of various sectors.

Changing Times

This is because the continent has changed its political landscape, with many of its 55 nations conducting peaceful, free and fair elections and embracing democracy and good governance in its key arms of government: namely judiciary, legislature and executive. Similarly, the demographics in the African population have continued to change: there is now a youthful majority in the population, and the growing middle class (about 15 percent of the population) provides a huge market for its products and services.

Africa is undoubtedly the world’s next growth frontier and is trying to address challenges such as fluctuating commodity prices, rising inequality and youth unemployment.

Over the last decade, six of the world’s fastest-growing economies were in Africa, with the World Bank stating that almost half of the countries on the continent had attained middle-class income status. Abundant natural resources, the growing consumer power of an emerging middle class and a youthful population are among the continent’s key development drivers, offering enormous potential for sustainable economic growth and development.

The African middle class could be a key factor in finding solutions to the challenges facing the continent. Research findings by the McKinsey Global Institute, a consulting firm, define middle-class households as those with incomes of US$20 000 per year or more. The African countries that currently have the largest middle-class populations include South Africa, Kenya, Ghana and Angola.

Productivity and Free Trade

In terms of trade, a free trade area such as COMESA offers its members and partners a wide range of benefits, which include a wider, harmonised and more competitive market; greater industrial productivity and competitiveness; increased agricultural production and food security; a more rational exploitation of natural resources; more harmonised monetary, banking and financial policies; and more reliable transport and communications infrastructure.

Similarly, SADC helps to further socio-economic co-operation and integration, as well as political and security co-operation, among 15 Southern African states to complement the role of the African Union.

Others include the East African Community (EAC) Common Market, which provides five partner states (Burundi, Kenya, Rwanda, Tanzania and Uganda) with the free movement of goods, labour, services, and capital, which significantly boosts trade and investments and makes the region more productive and prosperous.

In the banking and financial services sector, forays into the African markets by Chinese banks, and others from the Far East, as well as renewed interest in Africa from key global players such as Citibank and Barclays, have justified the efforts of consolidation we are witnessing in markets such as Kenya, South Africa, Nigeria and Ethiopia, demonstrating the realisation that the sector, if modernised and strengthened, can help champion Africa’s economic growth.

In East Africa, KCB Group stands out as a trend setter and anchor player in the financial services sector through its growing regional operations, capacity to underpin key transactions, and its activities in opening up investment opportunities for the regional population in what would soon be one of the largest indigenous banking operations in Eastern Africa.

African banks can – in borrowing from KCB’s regional model, in which its customers are on a one-branch banking platform – provide much needed financial support to a broader cross-section of clients across the continent.

The amount of infrastructural development going on in Africa is enormous; the number of investment opportunities and business enterprises is way beyond the capacity of African people to capitalise on unless they have the financial backing of Africa’s top financial institutions.

There is a huge opportunity for structured investment and operating finance that would move this continent up the ladder of global socioeconomic development. Banks must be ready to play their role in this.

The current phenomenon of telecommunications companies entering the financial fray is as intriguing as it is exciting. It has brought about a level of financial inclusivity never before witnessed on the continent. While this poses direct competition to banks, it also opens opportunities for strategic partnerships with the financial sector. A similar story now seems to be unfolding again.

Africans are coupling their already extensive use of cell phones with a more recent and massive interest in social media. In the process, Africans are leading what may be the next global trend: a major shift to mobile internet use, with social media as its main drivers. Studies suggest that when Africans go online (predominantly with their mobile phones) they spend much of their time on social media platforms (Facebook, Twitter, YouTube and so on).

Sending and reading e-mails, reading news and posting research queries have become less important activities for Africans. In recent months Facebook – currently the most visited website in most of Africa – has seen massive growth on the continent.  The number of African Facebook users now stands at over 17 million, up from 10 million in 2009. More than 15 percent of people online in Africa are currently using the platform, compared to 11 percent in Asia. Two other social networking websites, Twitter and YouTube, rank among the most visited websites in most African countries.

Taking Centre Stage

Banks can now join up with the likes of telecommunication service provider Safaricom to facilitate mobile money transfers and add value to their customer relationships. There are synergies to be exploited to reach marginalised rural markets through appropriate technological innovations and brand promotion through shared platforms.

We see banks also taking centre stage in the future of the continent’s carbon market.

The recent launch of the African Carbon Exchange in Kenya raised hopes for many who engage in clean investments, but also laid bare Africa’s unpreparedness to pick up a sizeable junk of the US$200 billion global business. Banks have to come to the fore to introduce appropriate products to finance green businesses, create a framework for the purchase and trading of carbon credits, and provide investment funds to those organisations that have viable green plans.

• Judith Sidi Odhiambo is director of corporate and regulatory affairs at Kenya Commercial Bank. The original version of this article first appeared on the World Finance website.

October 2013
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