Crucial role of the banking sector in Africa’s next growth chapter
At the start of 2000, a reputable economic magazine referred to Africa as the ‘hopeless’ continent – a comment that may not have seemed controversial at the time. However, more than a decade later, the picture couldn’t be more different. ‘Africa Rising’ was the new message of the day.
Riccardo Orcel, deputy CEO of VTB Group, head of global banking
at VTB Capital
There can be no doubt that banking is a crucial pillar of Africa Rising. The banking industry has a transformative power few other institutions can claim, and Africa is demonstrating this better than perhaps any other continent. One example which has made headlines in recent years is the development of personal mobile banking. Access to day-to-day banking services in large parts of the continent has been a major challenge over the last few decades.
According to GSMA’s 2014 Mobile Economy report, just 26% of sub-Saharan Africans had a registered bank account. Without access to savings and loan facilities, riding out crises such as Ebola can be close to impossible.
But according to the report, 51% of sub-Saharan Africans had access to a mobile phone. In countries such as Nigeria, mobile phone usage is as high as 90%, even while 56 million Nigerians live without access to electricity and 38 million lack access to clean water.
Little wonder then that the mobile banking market in Africa has exploded. More than 16% of people in sub-Saharan Africa say they use their phones to regularly pay bills or receive money, compared with less than 5% worldwide.
Africa is leading the world in banking innovation as well. One new service launched in Tanzania allows users to earn interest on their pay-as-you-go phone balances, which is helping to fund new businesses and jobs.
Looking beyond the day-to-day consumer banking revolution in Africa, the steady increase in investment banking activity across the continent may be just as important. The region saw 631 M&A deals in the period to September 2014, the highest number since 1995.
Private equity and sovereign wealth funds across the world are eager to secure a piece of the Africa Rising success story, wary of stagnant growth in Europe and elsewhere. Global banks are forging the path. They are finding a continent brimming with ambition and committed to modern, responsible banking practices.
VTB Capital’s experience chimes with that outlook. We have managed, in a short period of time, to quickly and effectively pick up market share in Africa, working on a number of sizeable transactions and reaching up to $2 billion.
Modern banking has more than just arrived on the continent:
In 2012, we managed major deals in Angola and Mozambique, two countries which have been major beneficiaries of the commodities boom over the last decade. Most recently, we were part of a consortium which was selected as preferred bidder to build Uganda’s first oil refinery, which is estimated to cost around $3 billion and would be developed under a public-private partnership with the Government of Uganda.
The number of our projects in the region continues to increase and we expect a very high growth in volume of deals. Today Africa has grown to the second-largest region for VTB Capital outside of the local market, and we intend to continue on this path and look at opportunities to expand our business in the continent.
These deals reflect the sheer scale of banking activity going on across the continent, much of which goes unreported. Financial institutions can be seen offering a vast array of services across the continent, ranging from commercial banking to M&A, DCM, ECM, bilateral lending and private equity placements.
International banks are even providing the expertise to help countries such as Rwanda launch stock exchanges for the first time. Five such exchanges were launched in the last decade alone. VTB Capital’s success in these areas reflects a natural expertise in emerging markets, in which many leading banks are investing heavily.
The role of banking on the continent reflects the cyclical, incremental nature of the Africa Rising story itself. On one level, it is the cornerstone of the economic growth that leaves consumers with disposable income to spend on more middle-class goods, and the improved governance that leaves governments with tax income to invest in infrastructure and long-term projects.
But increased banking activity is more than just a symptom of growth – it is also a crucial driver of it.
M&A deals allow successful local businesses to expand and join forces with others to offer scale and lower prices to the consumer. Private equity funds can offer companies access to borrowing at an affordable rate. Infrastructure deals can allow governments to provide amenities which spur further growth, such as road development, while sovereign bond issues enable them to raise capital that they otherwise may not have been able to.
Whether through the headline-grabbing innovation of mobile banking or the steady, behind-the-scenes progress of financial institutions, there can be no question that our industry is at the heart of Africa Rising.
Modern banking has more than just arrived on the continent: it has settled down and is helping to rearrange the furniture.