Capitalising on the New Digital Africa
by Peter Crawley, Managing Director, Treasury & Trade Solutions Head, Sub-Saharan Africa, Citi, and Geoffrey Gursel, Director, Sub-Saharan Africa Sales Head, Treasury and Trade Solutions, Citi
With strong annual growth rates of 5% or more, a wealth of natural resources, increasing urbanisation, expanding infrastructure and a proactive reform agenda in many countries, it is no surprise to treasurers that sub-Saharan Africa is becoming one of the most exciting regions for investment. To take full advantage of the growing opportunities offered throughout sub-Saharan Africa, corporations need a robust approach to cash and liquidity management. This can be challenging given the different levels of maturity in physical and financial infrastructure, and diversity in regulations, tax, payment practices and culture. Increasingly, however, these barriers are becoming more easily surmountable, particularly when working with a primary banking partner with the reach, depth of solutions and commitment to the digital agenda that is transforming the region.
Shifting trade patterns
While trade routes to and from Africa have traditionally followed colonial lines, this is changing rapidly, with increasing two-way trade between Africa (including West, East, Central and South sub-Saharan Africa) and Asia. For example, China has now become the biggest trading partner of countries such as Mali and Cameroon, followed by India and ASEAN countries such as Malaysia and Indonesia. In Central African Republic, while Belgium remains the biggest export partner, China was a close second in 2012 with strong growth since then. In Angola, nearly half of exports and a quarter of imports were with China, and in Tanzania, China and India were the biggest trading partners for both imports and exports.
It is not only the trading partners that are changing, but also the ways in which international business is conducted. Just as we have seen in other regions, importers and exporters in Africa are reducing their reliance on letters of credit in favour of open account. This paves the way for more automated, standardised processes to be established. Similarly, financing techniques, the trend towards export credit agency financing and supply chain finance that is prevalent in other regions also applies to Africa. As primary commodities form the bedrock of Africa’s exports, with refined products the most common imports, a variety of financing structures can be established that leverage these transactions.
Driving the digital agenda
One of the agents of change in Africa is the expanding breadth and sophistication of the digital agenda, proactively supported by banks such as Citi. Digitisation is taking many forms, from the development of automated electronic payment infrastructure in larger markets, reform of tax systems and collection methods, to new trading models and secure means of communicating between banks and corporations. However, countries in Africa are following different development strategies so corporations doing business in more than one country need to adapt their cash and treasury management strategy accordingly.
In Nigeria, the government is pursuing its Vision 2020 strategy, a multi-year digitisation programme in a traditionally cash- and paper-reliant economy. Progress in many areas is already substantial, with initiatives such as electronic admissibility of documents in courts already well under way. Payment clearing is being rationalised, with an automated clearing system that includes interoperability between participating institutions, leading to a high level of efficiency. For example, as cheques are now truncated, clearing time has been reduced from 21 days to one day, and new real-time offerings are also being introduced.
The financial infrastructure and payment culture in South Africa is quite different. While cash and cheques predominate in Nigeria, cheques account for less than 1% of payments in South Africa, down nearly 80% between 2008 and 2013. In contrast, cards, point of sale devices and ATMs have all grown in double digits over the same period, so solutions such as virtual cards can be particularly valuable for corporations doing business in the country, in which Citi is taking a pioneering role both in South Africa and other parts of the continent.
In East Africa, and Kenya specifically, where the M-PESA mobile solution has revolutionised payments, Citi continues to see significant interest in such disruptive payment innovations. With a population already accustomed to the use of mobile devices for payments, the user base for these technologies is growing rapidly, of which Citi is a pioneer having extended its mobile capabilities into Kenya. As a bank integrated with M-PESA in Kenya, Citi enables corporate and institutional customers to pay to and collect between mobile payment methods and bank accounts, including salaries, dividends, supplier payments, etc. This provides security and efficiency for Citi’s customers, convenience and control for the counterparty, and promotes financial inclusion across the region.