Written by Olle Malmgren, Standard Chartered Bank
In 2013 the growth rate in Sub-Saharan Africa exceeded four per cent, while countries such as Nigeria, Tanzania, Ghana and Angola all saw their economies expand by six to eight per cent. South Africa has long been the main economic powerhouse of the African continent, but a number of other countries are showing signs that they may finally realise their potential. For example, Nigeria’s GDP after rebasing in 2014 is now an estimated NGN80 trillion (USD488 billion), 27 per cent larger than South Africa’s 2012 GDP of USD384 billion. Moreover, half of the 20 fastest growing markets in the world over next 20 years will be in Africa, according to the International Monetary Fund (IMF).
Key investors in Africa include private equity funds as well as leading corporates from South Africa, other parts of Africa, India, China, Europe and the US. Leading multinational corporations as diverse as Vodafone, IBM and Starbucks have announced major expansion plans in the last 18 months, joining Indian and Chinese corporations which have been making heavy investments in recent years. Most companies are focusing on key countries such as Nigeria, Mozambique, South Africa and Ghana. This increased investment in Africa means treasurers now need to upgrade and improve their African treasury management processes to support the growth of their businesses.
A key requirement is to manage currency positions more effectively on both investments and trading flows, at a time when many currencies have been losing value against US dollar. Protecting the balance sheet, trading profits and dividends tends to be a challenge for treasurers in highly regulated markets – particularly those in which high interest rates and FX controls have historically made it difficult for corporates to hedge their positions. Likewise, restrictions on intercompany lending and capital controls in many markets can lead to trapped cash and present challenges for companies looking to manage liquidity across different markets.
While there are significant challenges, the financial sector is developing rapidly to meet these challenges. Treasurers, meanwhile, are taking steps to mitigate these risks and improve efficiency.
Source: The Economist