Bankers are loathe to sound too excited about anything these days. Having got things so wrong in the run-up to the financial crisis, they fear risking sounding too bullish. But the sense of quiet optimism about Africa is palpable.
As Hugo Scott-Gall of Goldman Sachs put it in a research note entitled Africa’s Turn, there is now meaningful growth and change in the continent.
It isn’t just the more favourable politics and economics. It is about demographics, too, with a gigantic increase in workers and consumers approaching adulthood.
“Africa could have the world’s largest workforce by the middle of this century,” says Scott-Gall. “Who could make money from that?”
In pole position surely will be the finance sector, which can benefit disproportionately from economic growth — be it by financing trade and business expansion or providing basic savings and loan products for the growing middle classes.
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Africa, for business people, has disappointed many times before, but the promising improvement of the past few years is no false dawn, according to Diana Layfield, chief executive officer of the Africa region for Standard Chartered Bank.
She spends her life crisscrossing the continent. “We are hugely excited about Africa,” she days. “We see it as an important source of growth, not just for Standard Chartered but for the world economy.”
Insurance chiefs are equally excited. Ralph Mupita, chief executive for emerging markets at Old Mutual, says, “If you look at Africa today, it’s in the same place as Asia was in the 1980s. There’s a very strong case for Africa right now.”
Finance chiefs are encouraged, not just by the commodities and energy boom, which plays to the continent’s strengths, but also by gradual political and cultural changes necessary if growth is to be sustained.
Their pin-up hero is Lamido Sanusi, the central bank chief in Nigeria, whose attempts to stamp out corruption, fraud, false accounting and sheer incompetence in that country’s banking system have boosted confidence that, at last, things are starting to change.
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If standards can be improved in the nation which is a byword for vested interests and corruption, then maybe Africa really can start to grow as fast as its natural wealth and energetic people suggest it could.
Financial services profits are already on the way up. Standard Bank of South Africa, Africa’s biggest lender, has just reported a 38 per cent profits hike to R 1.03 billion (£87 million) for its African businesses outside South Africa. Significantly, the bank has abandoned its forays into Russia and Argentina in favour of expanding in countries on its own doorstep, recently clinching a banking licence in Africa’s newest country, South Sudan, and investing harder in Nigeria.
London-headquartered Standard Chartered lifted underlying income from its Africa region by 13 per cent in 2011. Income growth from Botswana, Tanzania and Uganda, at respectively 23 per cent, 17 per cent and 11 per cent, beat many of its operations in fast-growing Asia and the Middle East. Operating profit from consumer banking reached $131 million (£83.6 million), while wholesale banking produced $465 million (£297 million).
Last week Old Mutual revealed that it was seriously thinking about entering markets such as Tanzania and Ghana, having last month secured a first toehold in Nigeria with the acquisition of the small life assurer Oceanic Life.
It’s a measure of the undeniable obstacles to expansion that Old Mutual has been operating in Africa for 165 years yet still only has operations in six countries outside its South Africa heartland.
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That is now starting to change, according to Mupita, who is cautiously excited by rising prosperity and the low penetration levels for insurance in so many sub-Saharan countries.
But companies need to be sensitive about rolling out products across national boundaries. Old Mutual’s success selling funeral plans in southern Africa cannot automatically be replicated elsewhere. “In Nigeria, people don’t want to talk about death,” says Mupita. Even so, he does discern improvements in regional integration, particularly in East Africa.
The patchwork of relatively small countries, each with their own regulations, can be a headache for companies that like to think globally, or at least regionally. “Stock exchanges are like airlines,” says Layfield of Standard Chartered. “Every country wants one of their own. But there are overtures about creating regional stock exchanges.”
According to Layfield, three things could derail the Africa story for banking and finance. The first is a global recession. Africa, whose commodities fuel the Chinese boom, would not be immune and the banking industry would suffer.
The second is “a lack of thoughtful regulation”. There is still a strong protectionist streak in many African policymakers, which is hardly surprising in the wake of the colonial era, but could be harmful.
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The third is what she calls “irrational competition”. Local banks with a different attitude to risk and governed by different capital rules could play havoc with pricing in banking.
But the pluses are seen as outweighing the negatives just now. The rapidly expanding mobile phone network, for example, has opened up a completely new way of marketing and delivering financial services, and cuts out the need for costly branch networks.
Case Study: Kenya embraces the mobile phone as the new wallet
Mobile phones are changing Africa in all kinds of ways. Two years ago Barclays launched its Hello Money service in Kenya and has already signed up 150,000 customers.
Using a mobile they are able to access their accounts, pay utility bills, order cheque books and other basic banking services.
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More recently, Barclays has integrated its service with Vodafone’s hugely successful M-pesa service, which allows customers to “charge” their phones with money and then make cash payments to others by text message.
“It’s really helped,” says Adan Mohamed, chief executive of Barclays in Kenya and regional director for the bank in East and West Africa.
“It enables our customers with a bank account to transfer money to people without bank accounts,” he explains.
Bricks-and-mortar bank branches are expensive to run and even with their network of 117 branches and 230 cash machines, customers can be a long way from a Barclays bank in Kenya.
While business customers prefer internet banking, retail customers like mobile phone based banking.
Of the 41 million people in Kenya, an estimated 22 million have mobile phones.
“Mobile phone penetration is much much higher than computer and laptop penetration,” says Mohamed.
Barclays is now planning to roll out Hello Money, which was originally developed in India, to 13 other African countries, starting this year with Ghana and Uganda.
Barclays in Kenya is the biggest bank in the country by profit and third biggest by customer numbers.
Its shares are listed on the Nairobi stock exchange.