Published: September 24, 2012
Ten years ago, establishing a corporate treasury hub in Africa would have been a relatively unusual move for a multinational. But more recently Africa has become a more attractive place to do business. The GDP growth of many African countries has improved and there has been a significant improvement in microeconomic stability and economic policies. As this growth in the region continues corporate treasuries look to regionalise their control and therefore look for local and regional cash management services.
In this article we look at the evolution of cash management in the African landscape and we also look at the importance of developing the right bank relationships in the region. Given the constraints across the continent, companies making the move into Africa for the first time often look to locate themselves where the best infrastructure and skills are located. Naturally, this also depends on what type of business the company operates. In terms of treasury operations across the region, however, the drive for centralisation is just as high as in other areas of the world, despite very different regulatory regimes in each African country. Shared Service Centres (SSCs) are growing in popularity, and regional treasury hubs are being established not only in ‘business-friendly’ South Africa, but in locations throughout the East and West of the continent also.
There are however restrictions that may prevent ‘standard’ treasury tools from being used. This is why it is so important to have a banking partner on the ground who truly understands the idiosyncrasies of the domestic market. As a result, it is desirable to work with a bank that has the local geographic presence, and knowledge, as well as the global technical and strategic know-how in cash management. In new markets the advice that the bank is able to give is as important as the on-going services that it can offer.
Although Africa can provide significant opportunities, a treasurer looking to set up operations in Africa needs to be aware of the risks and challenges associated with the region. Three stand out in particular; firstly, the infrastructure of delivery (i.e., collecting payments, paying people and securing title to, and possession of, goods); secondly, the need for visibility and control of cash in the different markets across Africa; thirdly, the logistical challenge posed by the cash-based society.
In most cases, multinationals want a single cash management platform that can offer them pooling and netting across all the countries in which they operate. In reality, there is no standard cash management environment available across Africa. Barclays operates in 12 countries across Africa, and in each one, we offer a range of cash management products. Our offering differs from country to country owing to the different regulatory environments in each jurisdiction.
One of the primary reasons for the different environments is the existence of unique foreign exchange control rules in each country, which can mean it is not always possible to manage cash across Africa from a single platform. Despite these challenges, it is possible for multinationals to view balances across countries and to initiate in-country transactions from the same platform. In some markets, it is also possible to manage notional cash pools or to concentrate cash, given that some companies want to move cash between African countries, whereas others want to repatriate cash to their treasury centres.
The second major issue treasurers must consider when looking at their African operations relates to the development of technology and telecommunications across the region. Good communication is vital for any corporate seeking to maintain visibility and exercise control over cash in disparate locations. Again, the level of infrastructure is important, but it varies quite significantly across Africa. In South Africa, for example, landlines are relatively well established, yet in other locations, there is no nation-wide telecoms infrastructure. In some places, telecoms investment has bypassed landlines, focusing on cellular and mobile technologies instead.
Companies want oversight of cash across the region as well as a detailed insight into activities in each individual country, and therefore technology platforms need to provide treasurers with this functionality, whilst allowing in-country personnel to access the same platform to perform local tasks.[[[PAGE]]]
As well as having visibility and control over cash, treasurers need confidence in the infrastructure used to move funds. Despite the development of payment infrastructure, most African economies are still very heavily dependent on cash. This has major implications for corporates moving into Africa.
Physical cash movement is partly a logistical issue, and there is still a significant law and order risk associated with cash collection. It is not unusual for vehicles carrying cash to be hijacked in different geographies; corruption can also be a problem in certain locations. Corporates therefore need to work with local partners who understand the risks and the practicalities of moving cash and are able to support in mitigating or insuring against such risks.
Barclays is present in 12 countries across the African continent. Alongside a substantial history in Africa, we work closely with different ‘grass root’ groups, governments, regulators, and business organisations to understand the different regulatory and cultural requirements for doing business. This ensures that we are best supporting our clients in those countries with the most up-to-date information.
In locations where we don’t have a presence, or our presence is limited, we will work with local banks to ensure that our clients can open accounts, have access to branch networks, and are able to make cross-border payments. We also work with these banks to give our clients cross-border visibility of cash and access to the local expertise which is so important.
By the end of 2012, we expect to have a network presence, either through direct ownership or a partnership bank, in almost every African market. This partnership approach gives our clients the tools and access to expertise they need to do business successfully in Africa. It provides the in-country teams with access to the local infrastructure in terms of the payment systems, and, especially, the management of physical cash. At the same time, group treasury has the visibility and control it needs via an efficient electronic banking system.
At every level, clients have banking partners on the ground who understand the local environment, ensuring all issues are managed as (or ideally before) they arise.
The importance of developing strong and trusted relationships between the bank and its clients is crucial. Viewing the bank as a ‘trusted partner’ is a key theme for today’s treasurers, and in some cases even more so than start-up funding or other lending commitments, when a corporate is entering a new market. This shows the true value that the right relationship can bring.
At Barclays, being a trusted partner means having long-standing relationships with clients that endure through both the positive and negative economic cycles. It is about developing a reciprocal relationship whereby a bank is able to anticipate its client’s needs and, conversely, the client is able to anticipate the bank’s reaction.
Corporates require a partner that will help them not only to facilitate their expansion by providing products that meet their needs, but also to solve their current challenges. This is in addition to assisting them with the persistent issues that corporates experience, such as global account visibility, effective management of global liquidity and automation through integration. Barclays also believes in helping clients to make the most of the local environment. For example, day-to-day business operations in Africa can be quite different to elsewhere globally, so multinationals often require a steer as to what best practice is locally.
There is definitely a need for banks in Africa to have an ‘on the ground’ presence because of the cash society that’s in place there. Across Africa, Barclays has more than 1,500 branches, while many of the other banks have a single branch in one particular country or just a Head Office in the region.
Over the next few years, particularly as Africa becomes less reliant on its Western trading partners and intra-African trade begins to take off, many international companies will be expanding into Africa. We know that corporates want their treasury processes to be as automated as possible and we see it as our role to help to make their cash balances as visible as possible. Having the ability to see into the country as well as see their overarching pooled cash position is essential.
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