by Geoffrey Gursel, Sub-Saharan Africa Sales Head, Treasury and Trade Solutions, Citi
Until very recently, Africa was considered the uncut diamond in the treasure chest of global growth. Over the past decade, GDP in the 11 largest countries in sub-Saharan Africa increased by 51%, more than double the speed of the growth of the world’s economy as a whole, and nearly four times that of the USA. Today, Africa’s immediate growth prospects may not shine quite so brightly for some industries, but it still offers enormous potential over the mid- and longer term. With currency and commodity volatility and regulatory uncertainty, however, treasurers have become more circumspect and cautious in their African strategy.
A wide variety of industries have been attracted to the unique opportunities for growth that Africa offers, with significant investment in the continent over the past decade. Given the disparities in the maturity and consistency of financial and physical infrastructure, legal frameworks and infrastructure across countries, establishing a business and driving growth has not always been easy. Today, however, existing challenges have been exacerbated by the rapidly changing regulations that governments are putting in place to protect their economies from the extreme volatility and sharp falls in commodity prices, particularly oil. Companies that are negatively impacted by low oil prices are taking a long-term view, and working with trusted partner banks to address short-term challenges. On the other hand, with more extreme market conditions than most forecasters had predicted, some companies are witnessing more favourable commercial opportunities than they might otherwise have predicted. In both cases, however, the speed of change is adding another level of complexity to their cash and treasury management activities.
A regulatory rollercoaster
Governments and central banks of heavily oil dependent countries such as Nigeria are rapidly implementing regulations to scrutinise in- and outflows, improve central bank visibility and security of funds, and introducing more stringent rules on business conduct. These include export/import rules and new signatory requirements, even for basic operating accounts. The aim is to maintain cash balances within the country to improve market liquidity, increase transparency and control over cash, and boost confidence and trust in financial governance.