Keeping up with Africa in 2014
From Adapting to Change to Seizing the Opportunity: How Corporate Cash and Treasury Management is Changing in Africa
by Geoffrey Gursel, Vice President, Africa Sales, Treasury and Trade Solutions, Citi
Not even 15 years ago, multinational corporations looking to enter Africa trod cautiously, fearful of the known corruption and fraud in traditionally cash-based markets and the difficulty of working in a region whose banking and infrastructure was not nearly as sophisticated as the West’s. But as significant urbanisation, electronification and innovative leap-frogging continue, the requirements, strategies and expectations of regional corporate cash and treasury management are forced to evolve as well.
By now the opportunities in Africa that corporations like to see have been heavily reported — from significant economic and GDP growth to mobile money exploding across the continent to substantial regulatory reforms. Indeed more financial institutions are welcoming the opportunity to introduce corporations to the ‘new Africa’ and the related, but varied, banking and economic transformation of its core markets. A recent survey conducted by The Economist Group of 217 global companies based in 45 countries reveals that expansion in Africa is a priority for two-thirds of such organisations within the next decade.
Today, half of the African population is under 20 years of age, and these people are rapidly moving to cities. In fact, more than 40% of the population is now living in urban areas. As corporations look to concentrate their expansion strategies into and across Africa, the evolving urban populations in geographically strategic cities are clearly tactical areas of growth. However, as the focus and concentration shifts towards the key cities of Cairo, Kinshasa, Lagos and Nairobi, increasing guidance, direction and trust is sought to understand how to maximise these economic and financial trends and what advice can be provided from the banking and financial sectors.
Here are the top five cash and treasury management must-dos that will emerge in 2014 in Africa.
Keep current with regulatory and central bank changes
As fast as the economic and digital evolution is pushing Africa to new directions, so are several new domestic regulatory and central bank modifications across a number of countries. Keeping abreast of these changes is not only critical to maintaining an understanding of new domestic treasury requirements, but could potentially change the way corporations need to look at their local working capital strategies. Some recent examples include the following.
Nigeria’s new payment system reform
As part of Nigeria’s ‘Payment System Vision (PSV) 2020 strategy’, the recently introduced ‘Faster Payments’ system will significantly improve payment efficiencies for corporations (and other sectors) and ensure greater levels of straight-through processing. The government has also introduced new limits for cash and cheque payments and deposits to begin the process of reducing such reliance on paper-based transactions throughout the cash-intensive economy.
Gabon’s new domestic funds transfer policy
To help fight against money laundering and terrorist financing, Gabon has implemented new procedures to align required documentation with domestic payments of certain values. This new step to the domestic payment process will help ensure greater control of national funds transfers, but corporations must be aware of the new processes or risk failure to facilitate local payments.
Zambia’s balance of payment monitoring
Also enhancing anti-money-laundering compliance and corporate governance, this change implements additional documentation and approval efforts affecting outgoing and incoming foreign currency transfers and local letters of credit. While this additional security measure will assist with overall visibility and monitoring of transfers, corporations must be aware of the changes required and how their banks will handle the new processes within their systems.
General financial sector changes
Across the 54 countries on the continent, there is a massive amount of change that the financial sector undergoes almost on a daily basis. To keep current with these is not an easy task, and corporations should be regularly briefed from financial institutions with an on-the-ground presence and with local market knowledge of African markets to ensure mutual operational transparency.
Understand trapped cash and how to manage excess liquidity
Aside from forecasting and formulating accurate models to manage excess domestic, regional and global liquidity, a common task for treasurers in 2013 was to unlock trapped cash in the more regulated markets and seek better and more strategic depositories to maximise global positions. Unfortunately, this is easier said than done in Africa.
Corporations should have real-time visibility over their accounts in Africa in the majority of countries, but the issue still remains of how to get excess funds out in good time. While there are options, albeit complex, in the larger Nigeria and South Africa markets for releasing excess funds back into a regional or global concentration centre, the majority of African markets have yet to use a simple, straightforward and automated way of sending excess liquidity cross-border.