De-mystifying Africa: How the Game is Changing for Corporate Treasury Payments

Transcription

1 De-mystifying Africa: How the Game is Changing for Corporate Treasury Payments Geoffrey Gursel Africa Client Sales Management, Citi Transaction Services 24 April 2012

2 From Shared Service Centres to XML to Mobile Payments Africa is booming for the Corporate sector. With a billion people, six of the world s ten fastest-growing countries in the past decade (1), an impressive 5-year GDP growth, and the significant emergence of the middle-class consumer, 2011 saw an explosion of Corporate interest on the continent with changes in Cash and Treasury strategies never thought possible. Coupled with corruption, fraud and political strife, a common fear for corporations entering or expanding in Africa was the domestic challenges faced in a particularly cash-based market. But an undeniable wave of change and innovation is happening in Africa that corporations cannot ignore; Federal Governments are taking measures to electronify their traditionally cash-intensive markets, Shared Service Centres (SSC) are expanding and being established outside of South Africa, mobile phones are now payment gateways and acting as bank and savings accounts and basic infrastructure is being improved through foreign direct investment no longer just from the West. While cautious corporate financial control still remains a top priority in 2012, more global and regional corporations operating in Africa are looking to leverage the growing Africa economic and electronic landscape and implement the cash and treasury best-practices of their Western and Eastern operational experience to the cost-effectiveness the continent can offer. As the focus on Africa becomes more relevant for growing regional and global companies looking for secure working capital strategies, 2011 saw many similar questions asked by corporations looking to enter, expand and re-strategise across the continent. Can we Ride the Centralisation Wave into Africa? Where, Why and How? By now the related cost, control and visibility benefits of a SSC are clear to most large corporations either re-organising their current SSC structure or looking to create one. But where to base the SSC is slowly changing focus with SSC s becoming more than just payment processing centres and cost-reduction certainly still a key focus, Africa s growth and economic forecasts are becoming key drivers for investment location decision. The World Bank has recently reported that in Sub-Saharan Africa, 36 of 46 governments improved their economy s regulatory environment for domestic businesses in 2010/11 a record number since 2005 (2) with ten Sub-Saharan Africa countries having growth over 6 percent in both 2010 and 2011 (3) both attractive assets to companies looking to centralise. While South Africa still remains the gateway to Africa and has always been the choice for centralised treasuries due to a variety of infrastructure and economic factors, other key cities and countries on the continent are also being identified as corporations look to leverage the growing labour force and find the balance between cost-effective and ease of doing business financial locations. According to a recent Mckinsey report, by 2020 the GDP of 7 African cities (not countries) will be above $50 billion and 5 cities will be above $100 billion (4). In addition to the obvious geographic best-fit of a corporate organisational structure, many corporations with heavy investment in Africa would argue that the key decision criteria for basing and establishing a SSC would be a friendly tax environment, political stability, legal, regulatory and exchange control clarity, and skilled labour accessibility. But with improved technological investment together with key favourable advancements to local payment infrastructure and ease of doing business, 2011 saw several new countries identified as potential centralisation hubs for SSC s. Kenya Being at the heart of the East African Community (EAC) to leverage the cross-border economic benefits of the 5 EAC countries, hosting high labour and English language skills, robust internet connectivity, direct flight access to South Africa, Europe and Middle East, and relative relaxed exchange control regulations for cross-border concentration, Kenya is becoming an attractive country to establish centralised financial units. Kenya s application of mobile technology has also bypassed most conventional infrastructure constraints with real-time access to information (i.e. trade and commodity pricing) via the mobile phone. This new accessibility of payments and information is an attractive asset to the dominant Communications, Food and Beverage, Software and IT Services, and Consumer Electronics sectors in Kenya and is rapidly expanding across East Africa Morocco As the country that improved the most in the World Bank s 2010/11 Ease of Doing Business report when compared to other global economies by simplifying and improving key areas of business regulatory reform (15 since 2005), Morocco s proximity to Europe and North America, 1

3 strong FDI and pro-active Government changes during the recent North Africa political activity, make Casablanca an attractive choice for establishing centralisation for Africa. Mckinsey is reporting that by 2020, the combined GDP projections for Casablanca and Rabat are in excess of $84 billion Ghana Located in the heart of West Africa, Ghana has substantial commodity investment with a stable government and significant FDI. In February of 2011, the Nestlé Group reconfirmed its commitment to the continent with the opening of a new Shared Service Centre in Accra to meet the needs of employees and business partners across Africa (5). The SSC will reportedly be responsible for processing invoices for payments of Nestlé suppliers in Africa, payroll of employees in the region and related human resources issues While there is certainly no one-size-fits-all model for establishing a SSC in Africa, corporations will always need to ensure the geographic structure of a centralised treasury is in line with the wider corporate strategy in Africa. However, as corporations expand in Africa for further or initial investment, it is clear that Africa is welcoming the change. Standardised Payments in Africa. A Reality? As larger multi-national corporations realise the benefits of migrating to a SWIFT-led payment model with a standardised file format like XML in the West, the questions remains: what about Africa? With some clearing and payment systems even still manually-driven, corporations have had doubts about the African market sophistication and readiness of rolling out their recent Western processes in Africa. However, many banks are now ready across Africa for the Corporate SWIFTNet transformation and with the related visibility, security and cost-effectiveness, the strategy across the continent is catching fire; 25 corporations with Business Industry Classification (BIC s) or registrations in Africa are now currently on SWIFT. And if the scope if expanded, as of January 2012, 73% of the entire 902 registered corporate Entities on SWIFT fell across EMEA (6). No longer tied to a multitude of bank connectivity options, the drive to standardise file formats on SWIFT, specifically for SSC-based corporations looking to expand, is becoming more adopted in Africa. Corporations with long histories in Africa may currently have numerous bank accounts and relationships in some of the larger markets like Nigeria or South Africa or Kenya, however, now that SWIFT connectivity can help form a single communication gateway, and XML can provide a single file format, bank rationalisation is taking a key priority in Africa and changing how payment reconciliation is facilitated. Cash is Still King. Right? There is no doubt that in the foreseeable future, cash will always be relevant for corporations in Africa. However, if the technological revolution in Kenya is an example of where Africa is heading, the ubiquitous mobile phone will soon be at the centre of corporate cash and treasury management in Africa. The convenience, popularity, and acceptance of having your mobile phone act your main source of financial inclusion in society has made the model so successful for Kenya that other countries are rapidly trying to replicate it. Mobile payment and collection flows are transitioning away from just Person2Person (P2P) and into the integrated business model of many corporate sectors. For example, farming and agricultural demand in Kenya for suppliers collecting from vendors or distributors has made the mobile channel an ideal form of transaction security and visibility in traditionally more remote areas. The business adoption of corporate payments to mobile phones is opening a new door to previously blocked or risky payment and collection portals this is also applicable to Media and Technology companies collecting radio or advertiser fees or ticket sales for airlines for faster, more visible payment and collection reconciliation. But regardless of the extraordinary mobile movement, Africa has many years to come to completely transition away from its cash-driven markets. Despite larger corporations driving the electronification trend of treasuries in Africa, almost all who work in Africa will have some dependence on physical cash (even in highly electronic markets like South Africa) and corporations working in Nigeria specifically are well-aware of this heavy reliance. Certain risk-mitigation techniques are needed to ensure that the handling of physical notes is well-secured and recorded for audit trails and reconciliation, but all would agree accounting for cash transfers is not an easy task. However, the Government of Nigeria is now doing something to change the game; holding the continent s largest population representing about 18% of all Africans, the amount of physical cash exchanged daily in 2

4 Nigeria is incredible. Unfortunately, the related risks and potential for fraud is a constant red-flag for corporations. Therefore, the Central Bank of Nigeria has taken the initiative to promote an electronic payments infrastructure that will be nationally utilised through a series of steps to help reduce the market s cash-reliance. The success of these new guidelines will substantially reduce transaction costs for users, banks and regulators as well as increase the sophistication of the payments system in Nigeria; From January 2010, a maximum limit on cheque payments was pegged by the Central Bank at the equivalent of $65,000 to encourage the use of electronic payments In May 2011, to encourage the use of electronic payment channels, the Central Bank announced new limits of cash collections from and lodgement into bank accounts, which became operational from April 1, The new policy pegs daily cash cumulative deposits and withdrawals at the local currency equivalent of $3,200 for individuals and $19,000 for corporates. Third-party cheques above the equivalent of $1,000 will no longer be cashed over the counter The above effort in Nigeria is a revolutionary key first driving step to help minimise the reliance on cash and related fraud potential and help ease the transition for corporations looking to expand into one of Africa s largest markets. This drive for electronic payments and reduced reliance on cash is assisting corporations lower their payment fees while integrating Nigeria into their centralised payment processing and control. This new win-win in one of the largest (if not the largest) cash-based market is key for corporates looking for the combined payment risk mitigation and cost-efficiency. What s in Store for 2012? As Africa continues to grow through the advancement of payment infrastructure across the continent, more corporations will inevitably look to leverage the new risk-averse strategies and re-focus their Africa operations. Enhanced visibility over regional liquidity positions and robust, real-time reconciliation over payments is key to driving a new focus for Africa in line with business expansion, growth and working capital strategy. However, there is no doubt that political and economic barriers in Africa can often alter a corporations drive to enhance their treasury management and these challenges will not change in the near future. But as this growth region and the related opportunities become more recognised, and transparency, accountability and centralisation slowly emerge as the standard, not the exception, Africa is beginning to represent a shining new innovative light that corporations and other sectors are not only drawn to, but investing in. And as the only continent that is predicted to double in size reaching 2 billion people by 2045 (7), Africa is welcoming the attention. 1) The Economist Africa Rising Dec 3rd ) World Bank 2012 Doing Business in a More Transparent World. 3) World Bank February 2012 Africa Pulse. 4) McKinsey Quarterly Checking Africa s Vital Signs June ) 6) SWIFT Corporate to Bank Segment January ) The Economist Miracle or Malthus? Dec 17th

5 About the Author Geoffrey Gursel is currently a Vice President working as a client sales manager in the Africa Citi Transaction Services (CTS) division located in Johannesburg, South Africa. For the last 3 years, Geoffrey has been working closely with regional Corporate and Public Sector clients expanding across Citi's 15 presence countries and regularly helps host best-practice cash management client seminars in Africa. Prior to joining the Citi sales team in Africa, Geoffrey worked in New York and London on both the NA and EMEA Proposal Units for 4 years supporting the sales teams with local, regional and global RFP responses. Prior to joining Citi, Geoffrey served 2 years in the US Peace Corps in Gabon, Central Africa, teaching English. This article was published on gtnews in May

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