Clear opportunities beckon across Africa for those who can adapt quickly to the changing conditions and employ bespoke strategic solutions, writes Kevin Holmes, Head of the Solutions Structuring Group within Standard Bank’s Transactional Products and Services unit.
Africa’s economy is not homogenous and there are many sectors and geographies that continue to display significant upside potential, with power and infrastructure development, for example, providing a base from which other industries can flourish. However, this growth can only be exploited if on-the-ground expertise is harnessed to achieve the best possible outcomes for a business that may not have the relevant experience, or network, in Africa.
Interesting trends are emerging which are opening doors for businesses. As an example, a consumer and textile drive into Ethiopia is taking place because unit costs have become so competitive there. So a big shift in the manufacturing and textile industry is starting to take shape, with the focus being on exporting to the rest of the continent.
Demand for intra-African trade should indeed become an important future trend for the continent despite the challenges – it is early days yet, but this dynamic is definitely one to watch.
To maximise these and other trends, Standard Bank, which is Africa’s biggest lender by assets, is actively growing its trade finance business, focusing firstly on the markets where it has an official presence or banking operations – South Africa, Angola, Botswana, the DRC, Ghana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, South Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe, and most recently representative offices in Côte d’Ivoire and Ethiopia. In addition to focusing on trade into, out of and across these markets, Standard Bank is also working on similar solutions for key clients in other African markets on a selective basis. The key is focusing on sectors with upside potential, which requires a high degree of expertise on the ground.
Businesses are looking for higher levels of operational efficiency as the realisation is that one size doesn’t fit all in Africa. You cannot take something that worked for a multinational elsewhere and simply apply that same thinking in Africa – it just won’t work.
Each opportunity presents unique circumstances and challenges. While different opportunities often feature certain similar aspects, businesses or advisors that think they can apply a “cookie cutter” structure will soon be found wanting; what works in a market (or range of markets) is not necessarily going to work in others.
Each sector has its own specific needs and challenges that must be well understood before the best solution can be harnessed. For example, the Standard Bank trade finance team and solutions structuring group have partnered closely with key major global agribusiness corporates, seed and input players, growers and fisheries, commodity traders and primary processors operating in various African markets, in order to support diversification of these corporates across the continent. The solutions and product offerings are focused on facilitating the trade and working capital requirements across the entire value chain in order to mitigate operational, market and price risk, amongst others. The key products include documentary credits (letters of credit – import/export, guarantees), invoice finance, trade loans, receivables discounting and supplier finance solutions.
Externally, operational efficiency may need to translate into providing access to broader pools of liquidity; however liquidity, logistics and regulatory constraints in certain markets would in some instances potentially inhibit this. This is where the benefits of having a partner with a strong balance sheet can come to the fore. For example, due to a footprint across 20 countries on the continent, Standard Bank can extend portions of transactions where possible onto its broader group balance sheet.
There is also a growing need for business and risk appetite processes to be streamlined, consolidating geographically diverse requirements into an overarching structure from a credit and legal perspective. Given the size of certain transactions relative to the local franchise capacity, broader group approval/support for these transactions from a risk perspective needs to be enabled.
It is clear that expertise on matters most relevant to real economic growth and development in Africa is becoming more important to achieve optimal outcomes. Independent input into strategic decision making is a crucial component to success, but it needs to be backed up by carefully executed solutions across financing, lending, trading and transactional requirements, supported by trusted advisory and research teams.
For example, a major challenge for corporates in certain regions at the moment is how they can diversify away from their dependency on dollars. This is where the benefits of a structured solution can really shine through, but it would need to be supported by a comprehensive network that can be used to structure transactions that suit specific needs and which can take place in an efficient manner using a liquid international currency, like the renminbi.
Worldwide debates about the need for a new global reserve currency and for currency stability are certainly testing financial institutions’ ability to think outside of the proverbial box. Standard Bank’s strategic partnership with the Industrial and Commercial Bank of China, however, places us in a very strong position to continue providing relevant structured transactional solutions.
Standard Bank’s team of sector trade specialists are the glue that can bind together and structure the increasingly complex nature of deals and, importantly, provide a crucial link into the bank’s origination centres across several key global centres.
A deep understanding of a business’ needs is required to forge a strong relationship with commercial units. This is how optimal financial solutions can be provided in the current volatile conditions, as well as maximising physical trade flows to generate trade finance-derived liquidity in emerging markets for customers.
Close collaboration with respective sales teams in local franchise markets, as well as with teams from international sales origination offices in London (covering Western Europe), New York (covering North America), São Paulo (covering South America), Dubai (covering Middle East) and Beijing (covering China) are an edge provided by having a Solutions Structuring Group on the ground.
As an example of how this can take place successfully, Standard Bank’s sales team in Beijing had started building a working relationship with a major Chinese EPC (engineering, procurement and construction) firm which has built a track record in a number of African markets for large-scale projects, specialising in rail and road construction. The firm had in place a number of individual credit facilities with respective local banks, but was looking to partner with an African bank to obtain a broader credit limit to facilitate the requirements of its own customers, many of which are government entities in respective African markets – key products required being trade guarantees (bid bonds, advance payment guarantees, performance guarantees, and retention bonds).
Due to the challenges, the needs of businesses need to be understood and supported from both a trade finance and working capital perspective. The focus needs to increasingly be on individual markets in Africa as well as multiple jurisdictions into, out of and across Africa. There is a growing need for solutions that can meet these needs.
This is where a dedicated solutions structuring group can enable the structuring of bespoke facilities required by the structured trade finance teams within global corporates. These teams work closely with their customers and their commercial business units to provide financial solutions, as well as optimising physical trade flows to generate trade finance-derived liquidity in emerging markets for customers.
This approach provides the ability to build the strong working relationships that are crucial to ensuring long-term success can be achieved by companies, many of which operate within their own complex multinational environments. A multinational client’s requirements need to be aligned to the requirements of respective local African regulatory bodies and central banks, many of which are experiencing changing economic environments as a result of the global change in trade trends.
As a bank which sees Africa as its home, we remain excited about the trade opportunities which exist across the continent. We therefore continue to innovate and provide structured solutions to promote the growth of these trade flows and activity across the continent.
About Standard Bank South Africa
Standard Bank South Africa is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank Group reported total assets of R1.98tn (about US$128bn) as of December 31, 2015, while its market capitalisation was R184bn (about US$11.8bn).
In South Africa, Standard Bank provides the full spectrum of financial services. Its Corporate & Investment Banking (CIB) division serves a wide range of requirements for banking, finance, trading, investment, risk management and advisory services. The CIB division delivers this comprehensive range of products and services relating to: investment banking; global markets; and global transactional products and services.
Standard Bank’s CIB expertise is focused on industry sectors that are most relevant to emerging markets. It has strong offerings in mining and metals; oil, gas and renewables; power and infrastructure; agribusiness; telecommunications and media; and financial institutions.
Standard Bank’s personal & business banking offers banking and other financial services to individuals and small-to-medium enterprises. Standard Bank has more than 647 branches and over 7,270 ATMs in South Africa. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings.
Standard Bank’s personal & business banking products include mortgage lending, instalment sale and finance leases, card products, transaction and lending products, and bancassurance.
For further information, go to http://www.standardbank.co.za/cib