by Maurice Cleaves, Managing Director, Head of Global Cash Management, Barclays
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.
Overcoming challenges in the region
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.