Supporting Business Success in Africa
by David Armstrong, Finance Director, Lonrho Plc
Lonrho has been operating and developing projects in the African continent for over 100 years and has historically been a worldwide conglomerate. In December 2005, David Lenigas was appointed as CEO, supported by existing and new institutional shareholders to re-establish Lonrho’s presence in Africa. Today, Lonrho is dedicated solely to investing and building businesses in Africa to help facilitate the development of the continent. Africa is developing as one of the strongest global emerging markets with its growth primarily driven by the expanding mineral, oil and agriculture sectors, and a significant internal economy being generated by a population approaching one billion people.
Lonrho operates in five industry sectors; Infrastructure, Transport, Agribusiness, Hotels and Support Services, of which Agribusiness comprises 60-70% of the company’s activities. Sixty per cent of Africa’s terrain is arable land, but only 10% of this is productive so far. By 2050, the world’s population will be unable to be fed without Africa (source: Agrimonde) placing the continent at the heart of the world’s food security strategy. Lonrho’s vital industries form some of the building blocks and foundations required for successful economic growth and sustainability, to allow Africa to take the place to which it is entitled on the world stage.
In this article, David Armstrong, Finance Director, Lonrho Plc, shares his experiences derived from many years of supporting successful growth in Africa.
Our group treasury is based in London, UK, and is responsible for defining strategy and negotiating bank facilities over a certain size. Treasury also proactively monitor the group’s current and forecasted cash and risk positions. Each business unit takes responsibility for execution, but as they do not necessarily have specialist treasury skills in place, local finance teams rely on treasury for advice and expertise. Bearing in mind the diversity that exists across every country in Africa, maintaining a local presence and expertise is invaluable to our business, so the combination of central oversight and local execution is a successful business model for us.
It is often assumed that cash management would be a particularly complex task when operating in Africa. In fact, it is not as difficult to transfer cash across borders as it may appear, as long as you understand the requirements in each market in detail. In most cases, we move cash using cross-border transfers. Some pooling is possible in southern Africa, but there are some onshore restrictions.
A more significant issue than cash management is currency risk management. With multiple currencies, some of which are very difficult to hedge, currency risk management is a major priority for Lonrho. The way we address this currently is to conduct as much of our business in USD as possible, both for purchases and sales. This is often positive for our customers and suppliers too. We aim to generate only enough income in ZAR to cover our costs, and we apply the same principle to other currencies as far as possible. Consequently, our approach is to do smarter business, and therefore reduce currency risk, rather than to try to find complex means of hedging.