[Africa CEO Forum] Lasbrey Nze: African Banks Need to Liaise Better with National Governments
African banks have evolved through a chequered history of post-independence reforms, deregulations and structural adjustments all geared towards stimulating the economies of various African nations. Many of the reforms had been at the instance of the International Monetary Fund under its Structural Adjustment Program, especially in the last two decades of the 20th Century. Further reforms had been by the initiatives of the Central Banks of specific nations. Varying degrees of successes have resulted from these reforms. Today, the financial systems of African nations are significantly stronger, but yet not deep enough to compete effectively in the global market. They will wax stronger in their stride.
The reforms have largely been undertaken in the areas of interest and exchange rates liberalization, deregulation, removal of credit ceilings, encouragement of foreign participation and investment, bank restructuring, privatization of state-owned banks and the development of capital markets. Although the reforms have met with several challenges and constraints, it is gratifying to note that most African banks that weathered the storm came out more robust and effective. Generally, there has been a slow but steady growth of the banking sector. However, significant development has been registered in certain countries like South Africa, Nigeria, Ghana, Kenya, Mauritius and Gabon. Other Sub-Saharan African nations and the more advanced countries like Egypt, Libya, Ethiopia, and other North African nations, have all evolved towards a stronger financial system.
Areas of remarkable development include universal banking, computerization of branch networks, e-banking, use of credit cards, ATMs, microfinance banking, bureau de change, and development of rural branches. It is also noteworthy that under the aegis of the Central Banks, Securities and Exchange Commissions and other regulatory institutions, the capital markets of many African nations have been developed.
The success story of African capital markets has reflected the gains of banking reforms. According to Databank Financial Services, African Stock markets outperformed those in advanced countries in 2003. Average African Stock Market Returns in 2003 were 44% as against 30% for Morgan Stanley Capital International Global Index, 32% for MSCI-Europe Index, 26% for S&P Index and 36% for Nikkei Index. The numbers in 2013 and 2014 are also cheery. The Further Offers doubled in capital raised from $4.6 billion to $9.3 billion. According to PricewaterhouseCoopers, the assets managed by Exchange Traded Funds (ETFs) in African financial systems will double to $5 trillion by 2020.
While we extol the performance, African banks still have hurdles to scale through. They should try to reshape the poor and persistent image of violence and failure painted of African nations. Most of these bloated profiling may become taken for granted if unchallenged. African banks need greater investment in human capacity building as the global financial system grows more sophisticated and digitized. They should deepen the financial services to businesses in the urban and rural districts alike. There should be a focused effort to integrate the formal and informal sectors at home and to integrate with the global financial system. Banks should stimulate the growth of young entrepreneurs who are more likely to apply more innovative and digital technology in their business operations.
African banks need to give priority to real sector projects especially export-oriented production of refined and processed goods. They need to increase their capacity for pooled resources within and across nations. On this note, there should be more loan syndications to facilitate the implementation of giant projects. They should also liaise effectively with national governments in their economic strategies including the curbing of corruption through bank surveillance system. They should encourage the build-up of accurate, reliable and up-to-date business and economic data for meaningful planning purposes. These and other strategies will surely stimulate African business.
Dr. Lasbrey Uzoma Nze is CEO Alpha Zomax Consultants