SOUTH AFRICA, Johannesburg–In Africa today, local capital markets, domestic institutions and favourable demographics are converging. This is seeing many countries take control of their own investment and growth agendas.
“Large parts of Africa are rapidly approaching a market standard where risk is increasingly less of a factor,” says Charl Bruyns, Head, Investor Services for Standard Bank.
Pension fund reforms, new settlement systems and exchanges, coupled with increased financial inclusion – largely driven by mobile technology and fintech – have created the market and capital conditions to leverage domestic investment and growth.
The result is that less vigorous flows of global capital to the continent following the financial crisis have, to a large extent, been offset by increased domestic saving and investments. This certainly explains, “Africa’s sustained higher GDP growth figures throughout the global financial crisis and its aftermath – even in the face of a protracted commodity price slump,” says Mr Bruyns.
While Africa will continue to need to import global capital for generations to come, today, this is no longer the continent’s only option.
“Many African countries are approaching the ‘golden standard’ at which legislation, market size and technology-enabled domestic efficiencies come together to produce reasonably predictable investment and growth outcomes,” explains Mr Bruyns.
The result is that, today, Africa is increasingly driving is own growth agenda.
Technology has been, and will continue to be, an important element in creating the domestic conditions – and ability – to leverage capital and drive growth. Disruptive technology in less developed environments has the potential to leapfrog large, manual, paper-based systems – directly to mobile and other mediums.
Countries without legacy financial services architecture, like Zimbabwe for example, were able to migrate from T+5 trade clearing to T+3 in two months. The same migration in South Africa, with a large and established financial services architecture, took three years.
This kind of technology-enabled leapfrogging has huge implications for the aggregation of capital and cross border trade as well as the paperless movement of goods along with electronic money flow. Technology is also broadening Africa’s tax base and making revenue collection more efficient. In other words, it’s not only private capital that stands to gain. “With more cash in the system, including state coffers, the ability of African governments to actively plan and constructively implement their own development agendas increases,” says Mr Bruyns.
Technology and especially the ways that Africa has demonstrated that it can adapt and deploy technology means that, “the time lag between underdeveloped and high risk – and developed and low risk – shrinks from decades to months in some instances,” explains Mr Bruyns.
Standard Bank’s own work in developing technology to leverage African opportunity was recently recognised when its Shyft global digital foreign exchange App won the 2017 MTN ‘App of the Year’ as well as MTN’s ‘Best Financial App’ awards. Ahead of its launch in 2016 Shyft had also won a bronze medal for ‘The Most Disruptive Innovation in Financial Services’ at the 2016 Efma–Accenture Distribution and Marketing Innovation Awards in Barcelona.
As important as the role of technology in reducing risk in Africa, is policy and legislation. “The potential for legislation to disrupt risk can, overnight, change the fortunes of countries when properly deployed,” says Mr Bruyns.
“When perceptions of risk decline it becomes easier and cheaper to drive and sustain growth as well as manage shocks since markets can use their own resources to adapt to change,” says Mr Bruyns.
Legislation that deepens domestic market resilience has equipped many countries in Africa to manage shocks better. The experience of those African countries that have crafted legislation that mobilises domestic capital for growth – even in turbulent times, “hold powerful lessons for legislators seeking to manage Africa’s traditional capital and liquidity challenges,” says Mr Bruyns.
For example, Nigeria offering returns on fixed income of 9% or more presents a compelling case to global investors seeking yield. Yet the inability to repatriate these earnings from the country means that the domestic market continues to battle liquidity and capital constraints. “Getting the policies, legislation and systems right – all easily achieved in a digital age – could change this dynamic overnight,” says Mr Bruyns.
Certainly, outcomes in East African countries where legislators have sought to free currencies, diversify production, liberalise markets and promote cross-border integration through rational multi-sector infrastructure development stand in stark contrast to regions where legislation has failed to aggregate local resources for growth, or free global capital to invest.
In time, as more African markets demonstrate their ability to marshal domestic capital effectively they will achieve investment grade status and feature in the strategies of developed world pensions funds.
For now, however, private wealth funds able to allocate part of their portfolios to higher risk jurisdictions, “are finding opportunities in those African markets where legislation allows the reasonable repatriation of profits,” says Mr Bruyns.