Africa Corporate Treasury – Who is Your Catalyst for Innovation?
By Geoffrey Gursel, Sub-Saharan Africa Sales and Implementations Head, Treasury and Trade Solutions, Citi
As treasury capabilities continue to mature in 2018, regularly re-evaluating corporate strategies and counterparties will be imperative. Only by capitalising on increasingly sophisticated developments such as instant payment systems, data analytic tools and by working with the right partners to support growth, can the new era of corporate treasury in Africa truly take shape. Geoffrey Gursel, Sub-Saharan Africa Sales and Implementations Head, Treasury and Trade Solutions, Citi, explains why 2018 is the perfect time to review and refine treasury operations in Africa, whilst maximising the value of bank relationships across the continent.
Treasury capabilities in Africa are maturing at a rapid pace. Yet many corporates have not updated their regional strategies or set-ups at the same speed. Moreover, Africa’s growth story continues to be full of twists and turns – and 2017 was no exception. After several years, Nigeria is emerging from recession, and much to the relief of the treasury community, the country’s restrictive foreign exchange policies are easing, revitalising dollar flows and freeing up trapped cash. Nigeria continues to be the largest economy in Africa and the country is gradually learning to thrive, despite low oil prices.
South Africa, meanwhile, has faced numerous challenges. Fitch and Standard & Poor’s downgraded the nation’s long-term debt to Sub-Investment Grade status in November 2017. Political upheaval in the country has also significantly dented confidence levels. In addition, the oil exporting economies in Sub-Saharan Africa (SSA) experienced low and often sharply falling growth (see Figure 1) – not helped by rising inflation, weakening exchange rates, and slow exchange rate policy responses by some central banks.
Conversely, the oil importing nations in SSA experienced real GDP growth of circa 4% in 2017, confirming that the sub-continent is no longer rising in a consistent manner. This economic disparity between the oil exporters and importers looks set to continue throughout 2018, and corporates will understandably be keen to follow pockets of growth.
Ideas, not just solutions
Against this mixed macroeconomic and political backdrop, bank relationships are coming sharply into focus. You’ve heard the benefits before of rationalising banks and accounts – and the cost-efficiencies that follow – but the asks on the continent from corporate treasuries have now evolved past traditional banking discussions. The advisory and idea-generation discussions and workshops – rather than just products or solutions – are becoming more commonplace, which changes the traditional role of the banks.
For example, Citi has developed new tools to analyse large amounts of data and match your findings to your goals and objectives and advise how to be more efficient, less risky or more cost-effective. It may have made sense 18 months ago to have as many bank relationships in Nigeria as possible in order to access sufficient dollars in the country, but that strategy is no longer entirely relevant, since the country’s foreign exchange policy is significantly improving. Utilising new sector benchmarking tools can enable corporates in this situation to see how others manage the exposure risks, compare working capital means and get a better understanding of where their peers match up.
Box 1: Oil exporters in SSA
Forward-thinking treasurers are also looking for banking partners to embrace innovation in Africa and be plugged in to the African central banks’ latest payment upgrades and offer these through their corporate banking portals. Such innovations include Nigeria Interbank Settlement System’s (NIBSS) Instant Payment solution, which is a point-to-point funds transfer service that guarantees instant value to the beneficiary.
Another example is the Kenya Interparticipant Transaction Switch (KITS) payments platform which allows any customer of a Kenya Bankers Association (KBA) member bank to send and receive funds in real time from their accounts. A similar project called the National Financial Switch is under way in Zambia, which will upgrade the payments infrastructure, making it far more interconnected and rapid.
The reason why many corporates are looking for this kind of functionality is quite simply because the consumer sector are demanding it. Payments innovation, and the willingness of banking partners to embrace it, is therefore likely to feature much more highly in requests for proposal (RFPs) in 2018 and beyond, as corporates become more exacting of their banking partners in Africa – and rightly so.
Expanding horizons and geographic shifts
In addition to reassessing their banking partners, a handful of progressive corporates are starting to think outside the box on where to establish or relocate their Africa treasury operations. South Africa was once the go-to location for a treasury hub on the continent, but corporates are now considering countries such as Senegal, Kenya and Morocco instead.