EuroFinance 2015: Treasury challenges in Africa and Latin America

Sub-Saharan Africa might be a territory that still poses major challenges for businesses, but it has been transformed from the ‘lost continent’ that many regarded it as when the 21st century got underway. A period of economic stability over the past two years has seen gross domestic product (GDP) pick up to 4.5% in 2014 and the World Bank has pencilled-in a further rise to 5.1% by 2017. While Africa accounted for three of the world’s 20 most populous countries in 2010, that total is set to grow steadily and reach 10 by the year 2100.

In the meantime, the mobile revolution across the continent means that Africa already has more mobile subscribers than Europe, which has provided financial inclusion for millions. Sixty-eight per cent of adult Kenyans now use the M-Pesa service for money transactions.

The giant German post/parcel delivery and logistics group Deutsche Post DHL now has 60% of its 489,000-strong workforce outside of Germany and has a strong presence in Africa. Markus Brendel, a senior expert at the group’s Europe, Middle East and Africa (EMEA) treasury centre highlighted the steady improvement to the region’s infrastructure and technology, technical innovation and the establishment of mobile platforms such as M-Pesa and the growing presence and range of services offered by global and regional banking partners to companies venturing into Africa.

However, those doing so need to take a long-term view, Brendel warned. The low oil price has triggered a severe liquidity crisis in Angola, while a recent political uprising in Burkina Faso has seen the banking system temporarily shut down. A critical shortage of foreign currency afflicts countries such as Angola, Egypt, Malawi and Zimbabwe. Regulatory restrictions applicable in each country across the region greatly influence what is possible and range from moderate to severe, while cross-border activities are also limited in many countries.

Add to this a list of other obstacles, which range from high local borrowing costs and stringent terms and conditions, processes that are often still manual and yet to be automated, trapped cash scenarios due to a lack of hard currency liquidity and the need to factor in escalating costs and scarce resources when preparing a business plan for Africa.

More positive developments include the development of monetary zones and common trading zones within the region. These include the Organisation pour l’Harmonisation en Afrique du Droit des Affaires (OHADA), the West African Economic and Monetary Union (WAEMU) and the Central African Economic and Monetary Community (CEMAC).

Beauty spot

Lower commodity prices are also putting the squeeze on many of Latin America’s companies, reports Gisele Remy, director of corporate treasury and financial strategy for Peru’s Belcorp. Founded in 1968, the company has grown to become the continent’s third largest direct seller of beauty products.

While Brazil’s rapid descent from the emerging economy powerhouse of a few years ago has attracted most headlines, the oil price slump has also heavily affected countries such as Ecuador where a liquidity problem has developed in the banking sector.

Remy says that in this environment, the focus on cash flow is key and Latin American corporates have been focusing on operational efficiencies, cutting costs and optimising their working capital investment. The company has also focused on the value to be extracted from financial efficiencies; these being better visibility, access to and control of liquidity; efficient access to funding; reduced foreign exchange (FX) exposure; and incorporating country-specific dynamics into the company’s macro strategy.

Belcorp is headquartered in Peru but has its main production facility in Colombia, with 30% of production outsourced to other plants in Peru, Ecuador, Mexico and Brazil. The company deals with no less than 73 banks and 267 accounts, the large number made necessary by the fact that it has to have accounts in each of the 15 Latin American countries where it operates. so its financing needs are in multiple currencies.

Treasury’s many activities are centralised and back office admin tasks are handled by a shared service centre (SSC). “We have  a constant dialogue with each of our country units that inform treasury of particularities, opportunities and risks in each local market,” says Remy.

“The country units also focus on business development as well as meeting sales, margins and efficiency objectives.

“We’ve achieved a high level of automation, with over 75% of payments and statements automated!, which should rise to 90% for payments and 80% for statements by 2016.”

Belcorp also follows a policy of ensuring there is no trapped cash in any country so when the business environment becomes steadily more adverse – as in Venezuela – it can reduce its exposure. However, to date the company has not ventured into Argentina, whose debt problems have periodically made headlines over the past 15 years.

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