African financial industry players have increasingly lost confidence in the ability of the sector to attract international partners and investors, a result of the economic and political challenges that have bedevilled the continent over the past few years.
This year, only 48 percent of financial industry players on the continent expect the sector to be more attractive to international investors, a 12 percent drop from last year’s 60 percent, the African Financial Industry Barometer shows.
The survey by Deloitte and the African Financial Industry Summit (Afis) shows that 37 percent of the industry stakeholders expect it to become less attractive, driving away more international investors and partners from the continent.
In the last survey conducted October 2022, only 26 percent of the respondents expected the industry to be less attractive, but new and old challenges over the past year have eroded confidence of many more stakeholders in the sector.
“The perception of the African financial industry’s attractiveness has been strongly impacted by economic and political turmoil in the region,” said the barometer published by Afis last week.
The drop in attractiveness follows a series of divestments in Africa last year by major international financial industry players, including the UK’s Standard Chartered Bank, French lender BNP Paribas, and Paris-based financial services firm Société Générale (SocGen).
Standard Chartered last year sold its subsidiaries in five African countries – Angola, Cameroon, Gambia, Sierra Leone, and Tanzania – to Nigerian-owned Access Bank, supposedly to allow it focus on faster-growing African markets.
SocGen, whose presence has mostly been in Francophone Africa, equally scaled back its operations in Africa last year, selling part of its businesses in Congo-Brazzaville, Equatorial Guinea, Mauritania, and Chad to pan-African lenders Vista and Coris.
The scale-backs came as African markets encountered a series of macroeconomic and political challenges, including protests, conflict and violence, inflation, and a squeeze on private sector investment as governments turned to domestic markets for borrowing.
According to the financial sector stakeholders polled, liquidity was severely constrained for them in 2023, and capital markets did not rise to the occasion to salvage them from the difficult market conditions.
Liquidity challenges
The survey reveals that 70 percent of financial industry players found the continent’s capital markets unsatisfactory in terms of liquidity, depth, and variety of instruments.
“In 2023, liquidity experienced a substantial impact due to the escalating requirements of regional governments,” said Kadidiatou Fadika-Coulibally, director of Hudson & Cie, an Abidjan-based securities brokerage firm.
“These governments no longer had access to international markets to fund their budgets, contributing to over 20 percent of the totals raised in the markets.”
Oulimata Ndiaye, director of Umoa-Titres, the West African public securities agency, said the liquidity difficulties highlighted “the lack of depth of the financial market, the lack of dynamism of the interbank and secondary markets in certain segments and the poor diversification of the investor base.”
In Kenya, liquidity challenges forced over half of the banks to rely on the Central Bank of Kenya’s liquidity window, reflecting failures in the secondary and interbank markets, disclosures in the IMF’s recent report on Kenya revealed.
But as liquidity woes are expected to ease this year, the financial sector expects challenges associated with political restlessness and monetary tightening to continue impacting their operations.
Based on the poll, increased political, social instability and security risk are the top concerns for the financial industry stakeholders this year, considered to be high by 60 percent of the respondents.
Other pronounced risks making the sector unattractive are deteriorating macroeconomic conditions, central bank rate tightening, proliferation of cyber-attacks, and tightening of regulatory requirements among others.
On the flip side, however, the growing disenchantment of international banking conglomerates with the African market is viewed as an opportunity for major Pan-African banking groups, some of which are from the region.
Africa currently has 27 consolidated banking groups, incorporated within the continent and operating in three or more countries.
From East Africa, such banks include Equity and KCB Groups, both of which have recently benefited from foreign investors scaling back in Rwanda and the Democratic Republic of Congo. Others are NCBA and Diamond Trust Bank.
According to last year’s ranking by the Africa Report, KCB and Equity are the two most profitable banking conglomerates in Africa, beating South African Standard and Absa Bank and Togolese Ecobank, which are much bigger in terms of assets.
“International banks scaling back African operations has benefited a number of local banks, which have not only increased in size and geographical presence but have reworked their business models to become true continental champions that can compete on an international scale,” said Afis director Ramatoulaye Goudiaby.
United Bank of Africa CEO Marufatu Abiola said: “While challenges exist, the changing dynamics in the African financial industry present opportunities for African banks to emerge as influential players.”
Source: theeastafrican.co.ke
