Africa’s Rough Banked Diamonds
Ex-Barclays CEO Diamond touted an African return in his post-scandal reinvention through a private equity joint venture with a continental family-owned group. Initial targets could include cross-border franchises like Ecobank and larger markets like Nigeria and South Africa, where Barclays-Absa previously expanded with $100 billion in assets. International commercial and investment banks have also followed clients into a half-dozen countries where FDI and sovereign bonds are a focus as three-quarters of the population is “unbanked” and only 5 percent have a credit card according to industry consultant McKinsey. Returns on equity over 20 percent are double developed economies, and related financial services like insurance and pensions are often nascent. However recent moves into lower-end and consumer lending may have been overdone, with South Africa’s central bank calling annual 30 percent unsecured growth “unsustainable” as it passed one-tenth of outstanding credit. The pace has halved since mid-year as institutions took large retail losses and a specialist house saw its shares plunge on the Johannesburg exchange. Regulators have tried to moderate consumer debt which has been a mainstay of domestic demand while reiterating that it does not pose systemic risk to the well-capitalized system. Mobile operations have been launched to attract poorer individuals and households as in pioneer Kenya, but have not been as successful and mainstream competitors have reduced commitments under the weight of a 5 percent NPL burden in the first half. Electronic banking in contrast has taken off in Nigeria through all-purpose remote cards and Visa and Mastercard are boosting their franchises with new technology and anti-fraud features. In global insurance the Sub-Sahara represent less than 0.5 percent of premiums even as the nonlife segment increased 7 percent annually the past decade, according to giant Swiss Re, mainly due to mandatory car and liability coverage. Life has been up at the same pace concentrated in energy producers like Angola and the UK’s Prudential intends to establish a regional presence through acquisitions after a Ghana deal.
African M&A at $40 billion through Q3 has risen 60 percent and along with natural resources consumer goods is a popular sector with Dubai’s Abraaj just buying Ghana’s Fan Milk, a big Accra bourse listing, with its extensive Anglophone and Francophone West Africa network. The Middle East connection extends to Islamic finance, with Nigeria and Senegal offering external sukuks and states in the former also using the no-interest structure. The Islamic Development Bank provides shariah-compliant infrastructure funding and several central banks participate in the Malaysia-based International Islamic Liquidity Facility. Kenya has established the legal foundation as it joins the early 2014 inaugural sovereign bond queue after this year’s record issuance, the latest a sequel from Gabon after its rating was affirmed. Foreign investor diversification and yield hunger support capital flows as well as prospects for “disorderly” interest rate jumps, the World Bank concluded in polishing its regular economic outlook.
