macroafricaintel | Banks in West Africa: Struggling amid tighter regulatory grip

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Banks in West Africa have been in the news for the wrong reasons lately. In Nigeria, four banks, of which three have foreign affiliations, namely Standard Chartered, Citibank and Stanbic IBTC Bank and Diamond Bank, were in total fined 5.65 billion naira by the Central Bank of Nigeria (CBN) for illegally facilitating the transfer abroad of $8.134 billion for MTN, a South African telecoms firm. The Nigerian central bank has also increased its scrutiny of some of the practices of banks that are clearly exploitative. In September, for instance, it instituted a fine for erring banks that fail to reverse failed electronic transfer transactions within 24 hours. In neighbouring Ghana, five banks, namely Unibank, Sovereign Bank, Construction Bank, Beige Bank, and Royal Bank, failed and had their licenses revoked by the Bank of Ghana, the central bank, in early August. The failures were largely due to weak corporate governance systems, with widespread fraud and insider dealings alleged. In Unibank, for instance, hitherto Ghana’s sixth largest bank, directors and their associates availed themselves of depositors’ funds to the tune of $1.1 billion, according to the BoG. Consolidation Bank Ghana, a resolution vehicle set up by the Bank of Ghana, to assume the assets and liabilities of the failed banks, is believed to be adequate to prevent a crisis, however. Stringent punitive measures against the directors of the failed banks are also expected. Nonetheless, poor banking supervision by the BoG is also a reason why the banks failed. That said, remedial measures by the central bank have proved to be effective. S&P Global Ratings, a rating agency, seems to think so, at least. In September, it raised Ghana’s sovereign rating to B from B- in part because it assessed the country’s banking sector to be largely stable. Regardless, there is a general lack of confidence by Ghanaians in the banking sector at the moment. It is also important to note the continued divide in the banking sectors of anglophone and francophone countries. “In West Africa generally, there continues to remain a deep divide between the banking systems in English and French West Africa,” says Andrew Nevin, chief economist at PwC, a consultancy, in Lagos. “Apart from Ecobank – a truly pan-Sub-Saharan African bank, the players are different in the 2 regions, and certainly, English-speaking banks have not had great success when they entered Francophone markets,” he adds.

De-risking, increased mobile banking, and tighter regulations
So what are the notable banking industry trends in the region over the past year, especially in Nigeria, Ghana, and Ivory Coast? “We have noted three trends,” says George Bodo, head of banking research at Ecobank, a pan-African bank, in London. First, we have generally seen a balance sheet de-risking trend in West Africa, where banks, in Ghana, Nigeria and UEMOA, increased the pace at which they purchased Central Government debt compared to lending to the real economy. In 2017, the share of Central Government debt to total banking sector assets rose sharply by 400bps y-o-y to 21%. In the same period, the share of customer loans rose by 200bps y-o-y. This is largely a risk-off trend informed by the elevation in credit risks (as gross NPL ratio rose to 16% in 2017, from 11% in 2015).”

“Second, there is an increasing adoption of mobile phone as a distribution channel-especially in Ghana and UEMOA. In Ghana, the value of mobile money transactions (primarily deposits and withdrawals) hit USD35bn in 2017, from USD18bn in 2016. In UEMOA, the value of mobile money transactions hit USD21bn in 2016, a sharp growth from the USD2.9bn transacted in 2013.”

“Finally, regulations seem to be tightening. In Ghana, commercial banks have until end of 2018 to increase their minimum fully paid-up share capital to a new regime of GH¢400mn (from GH¢120mn). In UEMOA, the regional central bank, BCEAO, has, effective January 1, 2018, rolled out a mix of Basel II and III inspired regulatory reforms. Some of the key reforms include: (i) introduction of operational and market risks in the calculation of risk-weighted assets; (ii) a capital conservation buffer surcharge – mainly 2.5% surcharge of core capital; (iii) a reduction in the single large exposure limit to 25% of core capital; and (iv) regulation and supervision of financial holding companies on a consolidated basis by the BCEAO and the Banking Commission.”

PwC’s Nevin provides additonal views on the Ghanaian banking sector: “With respect to Ghana, the number of banks was very high in a small market and it is not surprising there is a consolidation. The costs of banking technology – particularly with the Fintech challenge – and the increasing demands of regulatory compliance mean that small banks are going to be more and more uncompetitive. In the Ghana market, you have Ghana Commercial Bank as a huge player, and a number of very successful African Banks (GT, Ecobank, UBA, Absa for example). So it is not a surprise that small, poorly capitalized players cannot survive. The Bank of Ghana is doing an excellent job of resolving these banks and making sure the banking system in Ghana is robust.”

QE to the rescue?
And how does Ecobank’s Bodo see the banking industry in the region evolving over the next year or so; especially in the key countries Nigeria, Ghana, and Ivory Coast? “In Ghana and UEMOA, we are anticipating increased partnerships between traditional banks and mobile network operators (MNOs) especially in regards to liability mobilization. In Nigeria, we still anticipate increased risk-off liquidity deployment strategies.” How so? “In 2017, banks bought FGN-issued debt securities worth NGN245bn, while only lending NGN183.6bn to the real economy. This kind of asset allocation was bound to concern the CBN. However, we broadly believe that for balance sheets to grow, banks have to move up the risk curve. But this risk spectrum, which holds the right price incentives, still lacks the right ingredients that banks are looking for.” To push them along, the CBN announced a number of stimulus measures in August. It offered to release some of the funds kept by banks with it as reserves for lending to agricultural and manufacturing firms at the single-digit rate of 9 percent. Additionally, it offered to buy long-tenored bonds of corporates that demonstrate their activities would create jobs. But would these be enough to nudge the banks towards more lending to the real sector? Ecobank’s Bodo is sceptical: “CBN’s direct intervention in deposit intermediation will still not avail the ingredients.”

Innovate, innovate, innovate
“In the [Nigerian] banking sector, the environment remains very challenging. The uplift in oil prices has taken some pressure off non-performing loans in the oil & gas sector (but not the power sector). [And] there continues to be a widening gap between the major banks and the middle-tier banks in terms of return on equity and cost-to-income ratios. [Therefore,] middle-tier banks will need to find distinctive strategies to create value because if they do what other banks do, they will not earn adequate returns,” says PwC’s Nevin. Besides, banks all over the world and indeed Africa, are facing disruptions from new technologies at the behest of industry outsiders. At their current pace, financial technology companies could easily displace banks in the very near future. For the Nigerian experience, PwC’s Nevin provides some perspective: “all [Nigerian] banks (even the top tier banks) are challenged by FinTechs and they need to create new, innovative products if they want to appeal to a very young, connected population in Nigeria. FinTechs are very strong in the payment space – Interswitch, Paga, [and] Flutterwave, [for example] – and are increasingly strong in the consumer credit market. There are also new players trying to create savings vehicles for retail clients. The banks carry significant legacy costs and the FinTechs will find ways to take revenue at a much lower cost.” Clearly, short of innovation, banks in Nigeria and broader West African region, might find the times even more challenging yet.

An edited version was published in the Q4-2018 issue of African Banker magazine

macroafricaintel | Post-crisis transitions: Liberia and Sierra Leone

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

A number of African countries remain insecure. And no African country could be said to be totally secure. It is a matter of degree. A sudden change in circumstance has been known to spur protests that sometime get out of hand. These crises are sometimes occasioned by opportunists long searching for just the right moment to open old wounds, settle a score or achieve a political objective; with terrorism increasingly becoming the means of choice. (The current precarious security situation in Nigeria is a pertinent example.) Some crises or protests have been spurred by simpler things, however; like higher cost of living, in Tunisia and Sudan, for instance. A few years ago, it was the same reason that led to protests in Egypt and indeed Tunisia; which eventually toppled incumbent governments and replaced them with new ones. There was not so much of a revolution in Egypt, though. After electing an Islamist-oriented leadership, the Egyptian military stepped in. Now, the army chief who led the charge is president and up for “re-election”. Better progress was recorded in Tunisia. But judging from recent agitations, a more representative government has not been enough to assuage the angst of Tunisians about the hard times they face. Much earlier, countries like Sierra Leone, Liberia, Angola, Mozambique, and Ivory Coast suffered bouts of war and unrest of varying length and degree. Now they are mostly stable countries with elected or acceptable governments.

Good progress
Liberia had its first peaceful transfer of power from one democratically elected president to another in January 2018. Sierra Leoneans go to the polls on 7 March to elect a new president, as incumbent leader Ernest Bai Koroma completes his maximum two terms in office. Angola has a new head of state, Joao Lourenco, after a four-decade rule by Jose Eduardo dos Santos. Mr Lourenco has proved to be his own man less than a year into his rule. He removed erstwhile powerful scions of the dos Santos family from influential positions at the state oil company and sovereign wealth fund. Initial fears that an assertive Lourenco would meet with resistance from entrenched beneficiaries of the dos Santos era have proved to be misplaced. The response to the ongoing reforms in Angola have been positive within and outside the country. In Ivory Coast, another transition looms as President Alassane Ouattara concludes his final term in office. Last time there was a transition, it ended in civil war; as former president, Laurent Ggagbo, refused to accept his election defeat. The costs of that civil war remain. Rebels loyal to Mr Ouattara that were inducted into the military have been incorrigibly mutinous, for instance.

Peacekeeping, justice and democracy
Clearly, some post-crisis transitions have been better than others. Two stand out, though: Sierra Leone and Liberia. There was a time when the stability that currently prevails in these two countries was thought unthinkable. So how and why did they succeed? Sustained international support, a diminished male population from past civil wars and health epidemics, and memories of the negative consequences of conflict are some of the reasons why. Interventions by the international community in Liberia and Sierra Leone endured due to circumstances; albeit unfortunately so. The United Nations Mission in Sierra Leone (UNAMSIL) lasted for six years; from 1999 to 2006. That for Liberia, the United Nations Mission in Liberia (UNMIL), is scheduled to withdraw by end-March this year; about fifteen years after it was established in September 2003. The UN missions were presaged by West African peacekeeping efforts. In 1990, the Economic Community of West African States (ECOWAS) established the Economic Community of West African States Monitoring Group (ECOMOG) to restore peace in then war-ravaged Liberia. Seven years after, ECOMOG was similarly deployed to Sierra Leone to quell another civil war. These international efforts, which were not devoid of controversy, contributed a great deal to the relatively successful democratic dispensations in both countries thus far. Removing former Liberian president, Charles Taylor – a key antagonist in both wars – from the scene has certainly been beneficial; albeit more relevant for the Liberian case than that for Sierra Leone. A substantially reduced male population on the back of these murderous civil wars meant either democracy or autocracy prevailed depending on the post-conflict dynamics. When the key players in the civil wars were prosecuted, the reduced testosterone count allowed democracy to thrive. When the “victors” of these wars were left to their own devices, autocracy prevailed; like in Rwanda and Angola.

Salone decides
And in Liberia and Sierra Leone, just when the peace seemed to have endured irrevocably, disaster struck again. The ebola epidemic between December 2013 and January 2016 took more than eleven thousand lives; mostly in the two countries but also in Guinea and a few in Nigeria, Mali and Senegal. Despite these troubles, Liberia conducted a successful poll in late 2017 and made its first civilian-to-civilian transition in early 2018. Sierra Leone, which would be conducting its first post-Ebola presidential election in early March, may prove similarly successful; largely a 3-way race between Julius Maada Bio of the Sierra Leone People’s Party (SLPP), former UN under-secretary-general Kandeh Kolleh Yumkella of the National Grand Coalition and foreign minister Samura Kamara of the ruling All People’s Congress (APC) party candidate. Despite the not too stellar record of outgoing President Koroma, Mr Kamara, who has the overt backing of the main foreign benefactor of the state (China), is still expected to win; albeit likely by a slim margin. Mr Yumkella is one to watch, though. (I wrote a piece on the Sierra Leone polls for the March 2018 edition of African Business magazine; available at newsstands.)

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel | Can Africa win Trump over?

By Rafiq Raji, PhD

In mid-May, at the Africa Finance Corporation’s 10th year anniversary infrastructure summit (“AFC Live 2017”) held in Abuja, I asked Jay Ireland, the president and chief executive of GE Africa – the subsidiary of the American industrial giant on the continent – about his thoughts on whether Donald Trump, the American president, would be good or bad for Africa. Specifically, I wanted to know if President Trump would be worth the trouble of winning over. As Mr Trump does not know much about Africa, if the little mention the continent got during his election campaign is anything to go by, engaging with him early on might spring pleasant surprises, some pundits argue. Despite such assurances, I remained a little sceptical. So the opportunity to ask Mr Ireland, who incidentally is also the chair of former President Barack Obama’s Advisory Council on Doing Business in Africa and co-chair of the US Africa Business Centre, which leads the American business community’s engagement activities on the continent, was huge. In a sign of the times and the peculiar style of the current American president, Mr Ireland demurred, humorously wondering if his answer might not become the “subject of a tweet.” More importantly, he said a strong case was being made to the Trump administration to continue ongoing initiatives. I was particulary interested in the “Power Africa” programme initiated during the Obama administration; especially since even during Mr Obama’s tenure, it was floundering, talk less that of Mr Trump. The African Growth and Opportunity Act (AGOA), is not as vulnerable to a Trump rethink, albeit the administration could still exercise certain prerogatives over the choice of beneficiary countries and so on. My interpretation of Mr Ireland’s comments are as follows: Should Africa indeed not be a priority for Mr Trump, ongoing African initiatives may simply continue under the aegis of able and experienced technocrats at the American State department. And in the event Mr Trump suddenly develops a keen interest on African issues, proactive engagement with the administration like his and the business people he represents may be hugely differential. It has also been argued that African heads of state should do likewise.

Focus on first-order issues
In light of the recent exit from the Paris climate accord by Mr Trump, however, some are now beginning to think whether there is a need to even try. I would not be too quick to give up. True, with African countries already beginning to see the negative effects of climate change via droughts and so on, the recent American action is a setback. And of course, African countries initially had their own reservations about the accord. Not a few wondered why they should have to be environment-friendly at the expense of their development; especially as currently developed countries were not similarly cautious. But with research showing a nexus between climate change and increasing incidents of conflict in a number of African countries, there is a growing consensus about the need to be more caring of the Earth we live in. Still, to do this, African countries would require financial and technological support. To this end, the Paris agreement makes substantial provisions. With the American exit, however, also goes its financial commitments. It is also evidence that a Trump presidency would (at least for now) have second-order negative effects for Africa when the issues relate to broader international and multilateral arrangements that Mr Trump is averse to. So it is on the more specific African initiatives that African leaders should hope to influence him on.

Show respect
At the recent G7 summit in Italy, it was all too clear Mr Trump was not enjoying himself. He was particularly irritated by Emmanuel Macron’s (the French president) “macho-diplomacy”: Mr Macron’s overly firm and lingering handshake with Mr Trump at their very first meeting since the former’s inauguration was well-reported. As if determined to rattle the American president or put him to size, Mr Macron also made sure to refer to the incident afterwards as deliberate. That and another, where Mr Macron seem to be moving towards Mr Trump to shake hands, as the G7 leaders and invited guests did their traditional group-walk in front of the press, but at almost the last minute swerved to shake that of Angela Merkel, the German chancellor, must have been a little unnerving for a man known for his fragile ego. Thus, it is very likely that unpleasant experience was at least a secondary motivation for his action on the Paris accord. In his speech announcing the decision, Mr Trump was almost certainly taking aim at Mr Macron when he said: “I was elected to represent the citizens of Pittsburgh, not Paris.” (The Washington Post did a very insightful article on the dynamics leading to Mr Trump’s decision.) At the G7 summit it turns out, one of few instances where Mr Trump seemed to be enjoying himself was when he ran into some of the African delegates: Yemi Osinbajo (Nigeria), Alpha Conde (Guinea), Uhuru Kenyatta (Kenya), Hailemariam Desalegn (Ethiopia) and Akinwumi Adesina (African Development Bank). With deft handling, Mr Trump could become an ally.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel | Africans can judge themselves

By Rafiq Raji, PhD 

Unfair system makes easy prey of Africans
At least three African countries have announced plans to withdraw from the International Criminal Court (ICC). South Africa and Burundi would almost certainly be out by October next year. Many are likely to follow. Their reason? The ICC unfairly targets Africans. Established in 2002 to prosecute genocide, war crimes, and crimes against humanity, the ICC could as well relocate to Africa instead of its current wintry abode in the Netherlands. All but one – relates to allegations of war crimes in the 2008 Georgian armed conflict – of the ten cases currently being investigated by the ICC are related to African states. For a United Nations (UN) body, it is almost ludicrous that two permanent members of the UN Security Council do not subscribe to the court. China never ratified the Rome Statute, the treaty which established the ICC. The United States decided not to ratify the treaty in 2002, after having signed it two years earlier. The case of America, that supposed bastion of democracy and justice, is particularly shameful. Even as it has not subjected itself to the jurisdiction of the court, America, or any of the other three members of the Security Council, can block any case from being referred to the ICC. The United States would almost certainly stop any attempt to prosecute Israeli officials for alleged war crimes in Palestine. And under the current geopolitical order, it is very unlikely that Russia would allow the prosecution of the Syrian Assad regime, under whose watch that country has been virtually decimated. Not that that couldn’t change if the Russian regime suddenly rearranged its priorities, like its ever-scheming leader, Vladimir Putin, is wont to do.

Justice for all
If the ICC is to become legitimate, all members of the UN must be subject to its jurisdiction. Else, no African country has any business being a party to it. The ICC’s African tilt thus far certainly feeds the derogatory notion that Africans could not be trusted to dispense justice for themselves. Worse still, western exceptionalists are able to point to Africans’ longstanding mistrust of their ‘big men.’ And there might be some merit to that supposition, when you look at how justice is perpetually subverted in a lot of African countries. Ironically, the judiciary is probably the most credible institution left standing in most of them. Relatively, that is. For even as it was well known that judicial officers were similarly engaged in a myriad of corrupt activities, they at least went about their indiscretions with some sense of shame. And most of the corrupt ones tried to avoid ostentation. Not all of them it turns out. Considering how they had been largely left alone, the seeming impunity made some of them careless: Nigerian judges currently have a credibility problem, after raids on the homes of some very senior ones amongst them revealed they may have been living above their means. About a year ago, Ghanaian judges were actually caught on video by an investigative journalist demanding for bribe and sex, leading to the dismissal of at least twenty judges and magistrates. Still, judicial corruption is not peculiar to African countries, albeit it is more rampant. The South African system is probably as robust as it can get though. Regardless, Africans have demonstrated they can rise up to the cause of justice when needed: in May 2016, with support from the African Union, former Chadian dictator, Hissene Habre, was successfully prosecuted in Senegal for crimes ranging from torture to slavery during his almost a decade rule.

Empower the African court
At the core of the flawed state of the ICC is equity and equality. Is it a coincidence that most cases at the ICC are on African countries? Surely it is not the only continent where such atrocities have been committed. I am still personally distraught watching how Kenya’s Uhuru Kenyatta, a sitting African head of state, was made to go through the indignity of a trial on live international television. If that is not reminiscent of colonialism, I don’t know what is. Although the charges against him were eventually dropped, Mr Kenyatta has the unenviable record of being the first head of state to be so tried. I agree that victims of the violence during the elections that heralded his emergence deserve justice. But still, heads of states are treated with respect not because of who they are but because they embody the sovereignty of a people. Yes, most leave much to be desired. Even so, some pretensions matter: everyone deserves a certain level of dignity. I have heard arguments about the motive of the Zuma-led South African government in seeking to exit the ICC at this time. Critics of the South African move have suggested that given the country’s stature, it may have unwittingly provided cover for some not so well-regarded African leaders – ‘elected dictators’ – to now make similar moves. The Gambia proved the point all too quickly, announcing its withdrawal shortly after. No matter. There is an opportunity in the growing anti-ICC sentiment: the mandate of the AU’s African Court of Justice and Human Rights should be expanded.

Also published in my BusinessDay Nigeria newspaper back-page column (Tuesdays);

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Outlook for #Cocoa is mixed with #Ghana supply concerns balanced by recent abundant rains in #IvoryCoast

Amidst Ghana Cocoa supply concerns and consequent rally, abundant rains last week raises outlook for the crop in Ivory Coast. 

See Reuters stories 


Ivory Coast