Africa: Risk and resilience

Peter Crawley currently leads Citi’s franchise in South Africa and provides senior leadership in dealing with risk, franchise and business issues. He is also responsible for Citi’s treasury and trade business in Sub-Saharan Africa, spanning 11 presence and 26 non-presence countries.

Citi re-entered South Africa in 1995, and has since grown to become the country’s sixth-largest commercial bank and its largest foreign bank. The institution focuses on the public sector and is also the third largest equity brokerage in South Africa, with capital and reserves representing over a quarter of the capital of all foreign banks in the country.

Citi recently fielded its team of experts on Africa at a breakfast briefing in London, where GTNews spoke with Peter Crawley, country officer for South Africa and treasury and trade solutions head for Sub-Saharan Africa. He offered the following insights and market outlook for the region, as well as how its fintech industry is evolving.

GTNews: You recently spoke about treasury and trade solutions in Africa; which topics were particularly in focus?

Peter Crawley: Africa is a diverse continent with 54 countries, and complex in terms of language, capability and infrastructure. Citi brings a critical piece of financial infrastructure to over 40 of these countries. The pivotal focus was on Nigeria, which has been through a difficult time over the past two years, especially since the fourth quarter of 2014. Oil prices peaked earlier in the year, then drastically declined – going from around US$100 a barrel to US$26 in a relatively short period of time.

For a commodity-dependent economy the country suffered from the foreign exchange (FX) shortages, coupled with uncertainty over last February’s elections and the People’s Democratic Party, which has ruled since the democratic transition in 1999. This was seen as a real positive, but they were really struggling to come to terms with the lack of FX reserves.

There have been significant changes in regulations. It’s the first time since 1991 we’ve seen the Nigerian economy go into recession. It has been a particularly tricky time and has resulted in the Central Bank of Nigeria (CBN) and the government looking for credible alternatives. So, we’ve seen some liberalisation of the FX regime, which is slowly coming into effect but in a very stranded environment. We discussed what this means for corporates, how to handle their letters of credits, and the repatriation of local ownings as these rules are unfolding.

Do you monitor the fintech sector closely?

Fintech is a huge focus for us, because we recognise the need for change. Co-creating with our clients is a great opportunity, even though Citi is a large institution with high regulatory standards imposed that we need to adhere to. It’s important for us to find ways to co-create and embrace the digital and disruptive technologies. There’s a real focus in making sure we adapt to any new environments that we find ourselves in, where entrepreneurs are looking at margin opportunities and where client’s needs have not been met. This is an opportunity for us as we have the skills, the assets, the capital and the counterparty risk credibility, so we need to transform and co-create with clients.

For the past four years, we’ve digitised more than 20 receivable partnerships into our eco-system where we could use networks of other institutions to solve our client’s challenges of reach and consider how important that may be.

We have also been trying to replace cash collection arrangements with automated banking machines (for corporates), which we’ve been piloting in Cameroon and Tanzania.

What do you believe we will see in 2017? What are your industry predictions/trends?

The first one is financial technology. It’s interesting to see how fintech is evolving in Africa. Around five years ago, we began looking at what fintech entrepreneurs were up to, then trying to understand what it meant to us. Did this represent the unbundling of banking, were they addressing clients’ un-met needs, and how exactly were they going to evolve? I think it’s the last question – how they’ve evolved – that we can really learn from.

Many entrepreneurs have been snapped up by banks nowadays, so they clearly represented opportunities in the market. We see this a lot in the digital retail space, especially in South Africa. We saw one company – Tyme Capital, which launched its mobile bank service Take Your Money Everywhere, aka Tyme, in South Africa – acquired by Commonwealth Bank of Australia (CBA). Another company, Firepay, which developed mobile payments service SnapScan, got acquired by the local Standard Bank at the end of last year.

We’ve also seen these entrepreneurs elsewhere in the world – one of which is Kenyan electronic payments and non-bank credit card issuer M-Pesa, which in less than four years has grown to become a market standard – where the focus was outside the banking system to address client needs. M-Pesa has now grown to a significant scale and is competing against banks.

We saw a situation in Nigeria where e-payments and e-collections company Remita has grown to reasonable scale. The inter-bank switches in Nigeria and in Kenya were both driven by entrepreneurially-minded individuals, but actually became a form of multi-bank regulatory driven standard. It’s interesting to see that fintech is not only about the unbundling of banking, but also about partnerships and driving industry solutions to create solutions. We see it as a very exciting space.

The second phenomenon is being played out in the credit cycle. Recently we have seen low growth in South Africa, exacerbated by one of the worst droughts in Southern Africa in decades. However, we are beginning to see a rebound in commodity prices. The credit cycle is something we’re watching closely; there are pockets of opportunity, which you need to be locally tuned in to get the best outcome for clients and the banks out there.

Unemployment is also at very high levels. We have a billion in population across Sub-Saharan Africa, so when our economies are struggling, unemployment becomes a bigger issue.

Interestingly in Nigeria, 40% of all FX requirements are for items that could be domestically produced, such as rice, sugar and refined oil.

There are also challenges with the strengths of certain banking institutions. We saw a couple of banks face significant stress, yet they still hold quite a lot of promise in that the central bank has responded very well to these situations. They do benefit from low commodity prices, and have a very digitally-savvy and young population, which is exciting for the east African countries.

What are your thoughts on the international outlook for trade and treasury?

We’re all watching what’s happening with Brexit and following the US elections – we’re still trying to distil what this means for Africa. We’re all also currently watching the current US administration’s stance on trade and its impact on Africa. A good turn-out would be that there will be upward pressure on commodity prices, which will benefit the exporting economies. On the other hand, we also know that the value-add for the base materials are also minimal and low. As we’re part of regional trade blocks, there are certain areas where we can turn challenges into opportunities.

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