Multinationals still haven’t written off Africa (even SA)
Citibank sees plenty of scope to expand partnerships with companies such as Unilever and Anheuser-Busch
Citibank East Africa CEO Joyce-Ann Wainaina was recently appointed MD of global subsidiaries for Citibank sub-Saharan Africa. This role is responsible for the banks’ relationships with more than 1,000 subsidiaries of multinational companies active on the continent.
How do you see economic prospects for the continent?
As you know, Africa is a large and diverse continent. So while the oil-producing countries have experienced an economic slowdown, other countries have been enjoying strong economic growth at rates above 6% per annum.
And when we look back over the last 15 years, economic growth rates on average for sub-Saharan Africa have been close to 6%. This is an unparalleled period of stability and prosperity for the continent and has meant that we are seeing the emergence of an African middle class.
So multinationals that have invested in FMC (fast-moving consumer) oriented businesses have been very successful. We are seeing automobiles being assembled in Rwanda and Ethiopia. We have seen Anheuser-Busch disrupt the beer market in Nigeria. Cement production has been invested in, and then you have the mobile phone networks run by Vodacom and Orange that have become enormous businesses.
Increasingly, we are seeing digital franchises that are finding ways to serve the mass market, and in some cases these models go global.
Is this translating to more foreign direct investment?
Of the roughly 1,000 or so multinationals we have a relationship with, most of them are American, but we also bank Chinese and Indian companies.
Our multinational corporations are interested in investing in Africa, and in reality it is still dominated by US firms, something I think is underplayed. Is there any particular theme to the type of corporate activity you are seeing at the moment?
There is a fair amount of acquisitive activity on the continent at the moment. Many more of the local and regional homegrown companies are becoming “acquisition ready” for the likes of multinationals.
This means they are reaching sufficient scale and dominance in their respective markets that they are inviting bids from multi-national corporations. Some examples include L’Oréal’s acquisition of Kenyan Interbeauty brands, Kansai Plascon Africa’s acquisition of Sadolin’s East Africa operations, and the Danone acquisition of West Africa-based Fan Milk International.
Has Citibank undertaken an type of lending that is indicative of new trends?
We are seeing a huge trend towards multinationals engaging in supply chain financing. Their supply chain partners are typically local companies that either can’t access credit or borrowing is much more expensive for them.
Due to their strong credit profile, we lend to multinationals very easily, with the ability to lend in US dollars or the equivalent in local currency. They typically have a central treasury and have a very good understanding of how to manage their cash flows.
So the multinationals are standing as surety on the debt?
Yes. For example, a multinational like Unilever sources raw materials and products from hundreds of local suppliers. But while the multinational can borrow at rates close to the risk-free rate, suppliers, many of whom generate most of their cash flows from the multinational, borrow at rates as much as 500 basis points higher.
So we have been stepping into that space and lending to the suppliers. This means they can access (in some cases more) credit, and at a much lower price. It is also more efficient because we don’t have to ask them for all sorts of security. With the combination of technology, it’s transparent, so everyone can see it online.
In which countries is this happening?
All over the continent, including SA. It seems to be working well, and it’s supporting economic growth as it is stimulating small and medium-sized enterprises.
Absa recently announced an agreement to work with Societé Generalé by combining forces in wholesale banking. Do you see things becoming more competitive?
The challenge is when you have small local banks that grow exponentially with none of the risks kept in check, that brings trouble. So as long as the competition retains safety and soundness then it’s to everyone’s benefit.