The prospects for Sub-Saharan Africa remain encouraging, with a number of countries ranked as some of the fastest growing economies in the world. According to Africa’s Pulse—the World Bank’s analysis of issues shaping Africa’s economic future— GDP growth for the region is expected to strengthen from 4.9 per cent in 2013 to 5.3 per cent and 5.5 per cent in 2014 and 2015 respectively. As a result, Africa is certainly rising up the agenda of international corporate treasurers.
Within our area of operations, which we term “Middle Africa”(i.e. between North and Southern Africa), we continue to see increased interest from global and regional treasury departments in banking solutions to support their collection, payment, trade and liquidity management. Whilst there are similarities in the cash management and trade environments within Africa’s leading economies, there are significant variances in local policies, regulations and payments infrastructure. Hence it is important for treasurers to take into account country-specific nuances and avoid the temptation of a “one size fits all” approach. Foremost amongst these considerations are the regulatory environment, including monetary policy and exchange controls, and managing accounts and payments across multiple jurisdictions.
Local Knowledge is Key to Success
For most corporates active in Africa, the ideal situation would be to have maximum flexibility in the movement of funds between their countries of operation. However, this is often at odds with the regulatory objective, aimed at averting financial crises, of managing foreign currency reserves by restricting/monitoring cross-border transfers. Much to the frustration of corporate treasurers, these policies often result in “trapped liquidity”, where funds cannot be moved out of the country except as payment for imports, services or dividends.
Most countries have streamlined the requirements for transfers and invoices are often sufficient to support cross-border payments. However, in Nigeria, for example, there are detailed rules for foreign currency payments, so it is important to be working with a banking partner with in-depth local knowledge and experience able to assist in planning and positioning the business appropriately.
Operating across multiple African markets presents a number of challenges, such as managing account opening documentation in different languages and with varying legal frameworks. So it is equally important for multinationals to work with a banking partner capable of standardising and simplifying the paperwork.
Africa’s Cash Management and Payments Infrastructure are Improving
The African banking sector has significantly improved its cash management capabilities in recent years, better aligning its services with customers’ objectives and requirements. This is no longer limited to Africa’s major economies; it is a trend that is spreading out across the continent, allowing corporate treasurers to achieve greater levels of integration and efficiency than ever before. Two elements are critical to achieving an integrated African cash management solution: firstly, finding the right banking partner, and, secondly, ensuring that this banking partner has the technical ability to deliver a comprehensive end-to-end solution.
We also see corporations moving towards more centralised cash management and liquidity solutions, fully leveraging technology such as host-to-host or SWIFT integrations. Since the objective is to connect with a bank through a single interface, it is important for the bank to support that seamless integration, with a two-way flow of information through that same channel.
Payments infrastructure has significantly improved over the years, greatly shortening the turnaround time in moving funds between financial institutions. Cash remains the most common form of payment, although significant progress has been made in migrating customers to electronic transactions. In Nigeria, the regulator has placed restrictions on cash that can be deposited into bank accounts and this has resulted in greater use of alternative channels such as cards at the point-of-sale or mobile money. The introduction of various electronic transfer options has reduced the number of checks being issued and the risks associated with fraudulent or delayed clearance.
Most countries have implemented the Real Time Gross Settlement (RTGS) system, which facilitates same-day transfer and credit of high value or urgent transactions. In some currency zones, such as in the UEMOA countries (Benin, Burkina Faso, Cape Verde, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo), which operate under the XOF, and the CEMAC countries (Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, Gabon and São Tomé and Príncipe), which use XAF, the RTGS infrastructure enables same-day value on transfers between countries in that region. So a local currency transfer from Senegal to Burkina Faso (both XOF currency countries) is treated in a similar way to a domestic transfer and is cleared through the regional clearing system with same-day value.
Electronic funds transfers (EFTs) for small-value or bulk transactions usually settle on a T or T+1 basis, depending on the country. While most countries offer a single clearing window per day, Zambia, for example, offers four intra-day clearing windows for EFTs, thus providing greater payment options for corporate entities or individuals.
Mobile Solutions Developing Rapidly
Africa has embraced mobile phone technology, turning mobile devices into secure electronic wallets for receiving money and paying for goods and services. The success of M-Pesa in Kenya is well-documented and the development of mobile solutions continues at great pace across the continent. These solutions have rapidly evolved from being driven by mobile network operators, with banks playing a supporting role from a trust account perspective, to banks developing their own platforms that can be integrated with multiple network operators.
Mobile money services are attracting a lot of attention, with regulators, banks and other service providers building or enhancing the controls, infrastructure and service offerings within the mobile money ecosystem. In Nigeria, the regulator has played a key role in facilitating transfer and settlement of funds between mobile wallets on different platforms, allowing, for example, funds from an MTN mobile money wallet to be transferred to an Airtel wallet.
These solutions will continue to contribute to the economic empowerment and financial integration of the so-called “unbanked” sector and are also a highly convenient form of transacting for the banked population. For a multinational or international organisation, this is important as it improves the accessibility of funds and the security of transactions, as well as providing cost-effective access to the lower end of the market, enabling the provision of valued-added products such as mobile savings accounts.
Whilst Africa’s strong economic growth presents many opportunities, the expansion of any business on the continent remains challenging. Success is largely dependent on a well-planned and well-executed strategy.
Treasuries should be centralised but also extend "strategic autonomy" to decentralised units because they need to be responsive and close to the customer, argues Richard Scase, author and business forecaster on global megatrends.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?