Africa Corporate Treasury – Who is Your Catalyst for Innovation?

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.  

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.

Likewise, the fallout from the election in Kenya has prompted some corporates who had their treasury operations in the country to consider moving their centralised operations away from English-speaking Africa into francophone nations such as Senegal, Côte D’Ivoire or Cameroon. We expect this trend to strengthen throughout 2018 as more corporates begin to question the status quo of their Africa operations and consider the potential of new locations to be their gateway to the continent.

Fig 1:  Africa's distinction between oil exporters and oil importers

The rise of monetary zones across Africa will only reinforce this trend. The Central African Economic and Monetary Community (CEMAC), which comprises six countries who use the Central African CFA franc (XAF) is already well-established. The West African Economic and Monetary Union (UEMOA), which covers eight countries that use the West African CFA franc (XOF), is equally deep-rooted.

For treasurers, these monetary zones offer numerous potential benefits. Rather like the rise of the Single Euro Payments Area (SEPA) across the Eurozone, CEMAC and UEMOA enable treasurers to set up a single payment hub, from where they can conduct borderless banking – and create a much more efficient cash management structure. Corporates that once had liquidity spread across multiple banks in the XAF 6-country zone, for example, are now consolidating that liquidity to a single payment account limiting counter-party exposure.

Taking (back) control

Elsewhere, cyber fraud awareness and prevention will be paramount across the corporate treasury world in 2018, but even more so in Africa, where  the central banks and federal governments are paying acute attention to the recent attacks, ensuring there is collaboration and awareness training with financial institutions.   

This is precisely why, on top of developing transactional security measures and biometrics, Citi is looking to roll out a new pilot called ‘Payment Outlier Detection’ in Africa after testing outside the continent. This solution applies machine learning techniques to analyse a corporate’s payment data and behaviours for any unusual activity and enables the corporate to take action around any potential fraud. In essence, it transforms fraud monitoring from a reactive process within a corporate into a proactive one. 

While bank initiatives such as this will help corporates to have more robust operations, corporates must take the time to get their own fraud and cybersecurity policies and procedures up to scratch as well. All too often, multinationals have extremely thorough action plans in place for their headquarters that follow the ‘prevent, detect, respond, recover’ mantra, but the same doesn’t necessarily apply to their subsidiaries in Africa.

As technology becomes more pervasive in the treasury function, it is vital that Africa-based subsidiaries have the same rigour around cybersecurity as those anywhere else in the world. That means knowing what the protocol is when an attack happens, whether it is ransomware, malware, payment card theft, CEO fraud or a sensitive information breach. 

What should your first move be? Who do you call? Is there a kill switch? Those are all questions that need answering before an attack happens. Having a plan for restoring service and being able to process payments after an attack is equally important, especially since the financial flows going through these subsidiaries are only likely to increase in the years ahead.

Combining technology and analytical reviews 

Just as there is a tendency to think that Africa is somehow lower down the pecking order when it comes to the need for cybersecurity policies and procedures, misconceptions still exist about the sophistication of the treasury market in Africa too.

Even today, it is not uncommon for global companies to believe that they will not be able to transpose a model for a shared service centre (SSC) that they’ve successfully used in another region into Africa, for example. While there are nuances to take into account for every local market, Africa is more than capable of handling the level of treasury sophistication that we are seeing in other developed markets. The central banks are ready; the clearing systems are ready; and the range of transaction banking products and solutions on offer is impressive. 

Yes, there may still be challenges around moving money out of the continent and solutions such as cross-border sweeping may still be in their infancy in Africa, but the commercialisation and sophistication of treasury operations in Africa should not be underestimated. In fact, any company that has not benchmarked its Africa banking partners in the last 24-36 months may be surprised to discover what they are now capable of.

Citi, for example, is providing a host of new data analytics solutions to corporates in Africa. We see this as a huge opportunity for treasurers in 2018 as they look for ways to work smarter, such as leveraging functionalities to analyse the company’s use of payment and working capital methods per market and highlight where there is scope to improve payment outcomes – and benchmark themselves against other corporates in Africa specifically. This is just one example of data-driven innovation, but it showcases the new level of questions being asked on the continent, how banks are responding to them, and how sophisticated the corporate treasury market in Africa is becoming.