The perception has been that treasury in Africa is uniformly simplistic, inefficient and decentralised. Today, this is far from the case.
The economic news coming out of Africa of late has not been great. Key economies such as Nigeria have been hit hard by the commodities crash, whilst the region’s most developed market, South Africa, has had its credit rating downgraded to ‘junk’ by Fitch.
For businesses operating across the continent, these developments have certainly created some challenges. However, Africa still presents a tremendous growth opportunity for many organisations, investing into the region with pace and enthusiasm.
According to Geoffrey Gursel, Director – Sub-Saharan Africa Treasury & Trade Solutions Sales and Implementations Head at Citi, the macroeconomic uncertainty combined with increased corporate investment in Africa has spurred a reimagining of the treasury profession across the continent.
The first shoots of this process began to emerge in late 2014 into 2015. Gursel recalls that this is when a lot of treasury departments began looking to restructure, to become more efficient and cost effective. “This trend was very much led by the big oil names and some of the manufacturing companies,” he says. “And it was very much a reaction to the dip in commodities prices and the broader economic slowdown across the region at that time.”
The following year, treasury began to gain more prominence within organisations in Africa. This was due in part to changes in the region’s banking landscape and the emphasis corporates were now placing on counterparty risk. “This has always been something that companies in Africa monitor closely but in 2016 it intensified because a major regional bank announced that it was exiting the region, and a multitude of banking issues hit Kenya and D.R. Congo amongst other countries. This prompted a flight to safety and a shake-up in banking relationships for many corporates.”
So far this year, corporates have been building on the restructuring work they began in 2015, leveraging their new banking relationships to automate processes and drive efficiency. Corporates are also beginning to explore the possibility of integrating Africa more closely into their global processes. “This is a very new phenomenon,” says Gursel. “We have received a number of RFPs looking to link Africa into shared service centres based in Western Europe, Eastern Europe or even South Asia. It is an exciting development.”
Centralisation and sophistication
Corporates are not only looking to link treasury in Africa to their global structures; they are also looking to increase the sophistication of treasury on the continent by centralising, although this is a uniquely African form of centralisation.
Driving this is a combination of regulatory easing and harmonisation. Across the continent, monetary zones are becoming more utilised, including the Southern African Development Community formed of 15 Southern countries, and the 6 XAF and 8 XOF markets.
“The increased relevance of these monetary zones is having a big impact on corporate treasury operations,” says Gursel. “They are enabling treasurers to create mini-payment hubs for certain currencies and groups of countries. To put this into perspective, we have some clients who leverage the XAF and XOF zones like Europe does with SEPA and borderless banking. Physical office presence is becoming less relevant as corporations leverage the same Central Bank, Clearing Zone and Currency to create hubs that leverage the borderless efficiencies.”
These regional hubs are also providing optionality when corporates are thinking about where to base treasury operations. “Corporations send us a single payment file that contains multiple payments, in multiple currencies, across multiple countries – but this was usually initiated via South Africa - the primary entry point into the continent,” says Gursel. “But today, companies are coming in and looking at countries like Ethiopia, Senegal and Morocco to set-up centralised finance structures. This is exciting for these countries and should promote competition across the region and can only be a good thing for the future of treasury on the continent.”
Despite the many positive developments, Africa remains a tricky place for corporates to do business. Yet, all the signs are pointing towards a bright future for the continent. For some companies, Africa is their number one growth market.
The future is also bright for corporate treasury here too. “It’s no secret that the definition, background and team size of the treasurer is changing. Embracing technology is no long an option and is helping treasury evolve to be more strategic within the rest of the organisation.” says Gursel. “This, tied with the regulatory developments and long-term economic growth forecasts across the continent, means that treasury departments in Africa could soon leapfrog those in Europe or the US in terms of sophistication. This is something almost unimaginable a decade ago. It is digital leapfrogging at its best.”