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Local financial companies are capitalising on the opportunities left by international banks exiting Africa yet continue to struggle with the gap between perceived and actual risks in the market.
SPECIAL REPORT | BIRD AGENCY | In early 2022, UK-headquartered Standard Chartered Bank announced it was exiting five African countries and partially exiting two others – breaking its ‘here for good’ brand promise after more than a century on the continent.
A year earlier, another British-based bank but a fairly new entrant, Atlas Mara withdrew from seven markets, walking away from its bold statement, “Africa: too big to ignore”, after only seven years.
Barclays sold its majority stake in Barclays Africa Group in 2017 and in August 2022 sold its remaining stake in the rebranded ABSA, exiting a region it had first entered 90 years before. Credit Suisse and France’s BNP Paribas also pulled out in 2022.
The reasons for exit, they said, was generally a need to refocus on core markets to achieve growth and scale due to the challenging African retail banking environment.
Many of the more than 1,000 financial industry players gathered in Lome, Togo in mid-November to debate how the industry can unlock a US$1.5 trillion potential market by expanding banking, insurance and capital markets penetration, had a very different view. Many of the sessions were made public via the internet.
“There are still numerous opportunities out there including those presented by exit of international financiers and we are poised to take advantage of that,” said United Bank for Africa (UBA), Chief Executive Officer, Marufatu Abiola.
“Africa can only be developed by Africans. We need to increase our size, increase our capacities, We need to believe more and invest more in Africa,”
Lagos-headquartered UBA, with a presence in 20 countries, said it is keen on expanding to all African countries either through organic growth or acquisitions.
“Both can be considered. Exit of international players presents a unique opportunity. If there is an opportunity to acquire, to merge or grow organically, I don’t think any of those is off the table,” said Abiola.
International Finance Corporation (IFC) Vice President Africa, Sergio Pimenta shared similar sentiments, painting a bigger picture of the rising demand for growth capital on the continent.
“The opportunities are very significant and the demand is very strong. We are also seeing shifts in these demands and one of them is regionalisation of the market, as companies, banks and other financial institutions in Africa look at the regional markets. And that’s a very in-depth movement and trend that creates a lot of demand,” Pimenta said.
He also singled out rapid urbanisation, climate change and digitalisation as drivers of key opportunities that financial firms should tap into for growth.
In 2022, the IFC had a record year, with US$43 billion of capital deployed across the world. US$11.5 billion of that was deployed to Africa, the largest amount it has ever deployed on the continent.
Yet despite the positive prospects clearly identified by a wide range of bankers, Africa continues to be profiled as a risky playground.
African Guarantee Fund Group Chief Executive Officer, Jules Ngankam said one of the major challenges facing Africa is a huge gap between the real and perceived risk at the sovereign level and an even worse gap at the small and medium enterprise (SME) level.
“Of all the financial crises we have had around the world, none of these came from Africa, but people still believe that it’s the riskiest continent,” posed Ngankam.
In a risk analysis of Africa’s insurance industry, Namibia National Reinsurance Corporation, Managing Director, Patty Karuaihe-Martin said while the average loss ratio in Africa was 70%, Europe’s ranged over 90% and would also cross 100% mark.
“Only about 3% of the world’s largest losses occur in Africa. All this data shows Africa’s portfolio is not risky. I must admit we have some challenges, we will not say it’s easy to do business in Africa due to data inadequacy and low insurance penetration,” she said.
The three giant international rating agencies consistently downgraded the credit risk profiles of major African economies in the first six months of 2023.
Moody’s, Standard and Fitch have together actioned 13 negative ratings, out of which seven were downgrades and the remaining were negative changes in the outlook of 11 African countries.
Among the countries that have suffered credit rating downgrades are Nigeria, Kenya, Egypt, Tunisia and Ghana, hurting their prospects of tapping into the global markets for cheap credit.
“We need to offer investors an instrument that enables them to absorb that perceived risk,” said Ngankam.
In its latest Africa Sovereign Credit Rating Review 2023, the African Union mulls examining the feasibility of establishing an African Credit Rating Agency (ACRA) as an independent entity of the Union to provide alternative credit ratings to the ‘big three’.
“It is envisaged that the ACRA would provide balanced and comprehensive opinions on African credit instruments to support affordable access to capital and the development of domestic financial markets,” said AU in the review.
To strengthen Africa’s financial industry, Abiola suggested harmonising and strengthening regulatory and governance structures and interconnecting regional central banks to remove artificial barriers.
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SOURCE: By Conrad Onyango, bird story agency
