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SMEs in Ghana: Take it to the bank

 

The World Bank Group recently published a 2014 Doing Business Report titled Understanding Regulations for Small and Medium-Size Enterprises in which Ghana topped the ECOWAS region. Overall the report compares the rate of reform among 189 countries as an indicator of how easy it is to start a business from a regulatory perspective.

Last week at The Economist Conferences’ Ghana Summit there was much discussion of the kinds of business Ghana needs to cultivate in order not to fall foul of Dutch Disease* – a term coined by economists to describe negative impacts of natural resource discoveries. More agricultural processing, manufacturing in general and services were highlighted as being of key focus for job creation.

As a services company entering the Ghana market from the UK, our experience is that once you have made your choice about whether to joint venture with a local Director, or create a wholly owned subsidiary, it’s fairly straightforward. The next step is to get yourself a business bank account. But where to start?

According to Wikipedia there are 1,800 banks in Africa. Very few of them are making a play for international business outside of Africa – Ecobank and GT Trust being the two exceptions that spring immediately to mind for their ad campaigns. It would be great if there was a resource that made it possible to compare banks and get recommendations from customers – happy or otherwise.

African banks have a reputation for being conservative and charging high interest rates for business loans (if they give them at all). Here’s hoping that someone will build a website that compares rates and functionality in key areas such as online banking as well as customer service. That’s a great way to give a boost to the ‘missing middle’ of SMEs in Africa and to tip the balance of power back in their direction, enabling them to partner with banks who are the most competitive and who try hardest.

 

*The Financial Times Lexicon definition of Dutch disease is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflows lead to currency appreciation, making the country’s other products less price competitive on the export market. It also leads to higher levels of cheap imports and can lead to deindustrialisation as industries apart from resource exploitation are moved to cheaper locations. The origin of the phrase is the Dutch economic crisis of the 1960s following the discovery of North Sea natural gas.

 

Insight

The United States of Africa?

 

Isabelle Alenus-Crosby

Gaddafi’s dream might live on through an “undercurrent” that seems to be uniting Sub-Saharan African countries

I have just returned from Ghana, the 30th country (or so) that I have now visited in Africa. Even though I was only in Accra, Ghana’s capital, I completely understand why the Ghanaian diaspora is so keen to return home.

Ghana, like many other places in Africa, is buzzing. As I was walking around the city centre, a thought suddenly occurred to me. Now that Africa is increasingly hailed as the “rising continent”, those in the West who are keen to stand out as “experts”, insist on shouting from every rooftop that “Africa is a continent, not a country”.  I don’t know who their audience is, pre-teens who opted out of Geography perhaps, but even though I would never claim to be an expert in anything except daydreaming about the beaches of Mozambique, I can’t help but notice increasing similarities between Africa and America.

As a child, when I lived in Tanzania and my parents and I would drive to Kenya (for shopping) or to Zambia (to visit my sister), each country seemed quite different. I don’t feel that way anymore. In my gap year, back in 1996, I drove across the whole of North America (petrol was cheap then), and even though I found the United States to be very diverse, from Alaska to Louisiana, I always knew that I was in the USA.  Yet, as soon as I entered Canada I felt that I was in a very different country. Some “undercurrent” seemed to unite all the States I visited, yet it wasn’t present in Canada. I am starting to feel the same way about North Africa/Sub-Saharan Africa. North Africa is significantly different to its neighbours in the South, but driving around Accra last week, I could easily have been in Kampala or Nairobi. The billboards, buildings, street sellers, all have the same “feel” that you simply don’t find in North Africa or anywhere else in the world.

Africa has many languages and cultures, yes, but  I am writing this blog from Belgium, a tiny county where 60% of the population speaks Dutch, 38% speaks French and 2% German.  The Dutch is divided into hundreds of Flemish dialects that could easily be mistaken for different languages as they don’t even sound the same (don’t get me started on the cultural differences here).  Yet every city is similar enough for me to know that I haven’t crossed any of the country’s borders. Europe is very much a continent, united mostly by an agreement between 27 countries not go go to war anymore. 10 minutes into France and you are definitely no longer in Belgium.  Even the petrol stations are different by the way they look, the items they sell in the store, and the lavatories.  Countries in Asia and Latin America differ as much as those in Europe.

 

In Sub-Saharan Africa however, petrol stations are quite similar, just like in the US they are quite similar in all 50 states (including Hawaii).  This brings me to President Obama’s upcoming trip to Sub-Saharan Africa (which merits a blog of its own – watch this space) on June 26th. He will be visiting Senegal, Tanzania and South Africa, 3 of my favourite countries on the continent. He intends to focus on economic cooperation and I believe that he might expand the African Growth and Opportunity Act, the Clinton-era legislation that provides Sub-Saharan countries with duty-free access to America’s markets for almost all products (except sugar, dairy and peanuts). To Americans, their President will be doing business with “Africa”, plain and simple. While Obama has devoted significant time to emerging economies in Asia and Latin America, he has spent just one day in sub-Saharan Africa since taking office (a 24-hour visit to Ghana in 2009).

I hope that his upcoming visit will give American citizens an updated view of Sub-Saharan Africa, as once the continent becomes more “united”, a process that seems already underway, not only by my humble observations, but also through trade barriers being dropped and increasing political and economic cooperation, it will certainly be a force to be reckoned with. A more united Africa will certainly be able to meet the challenges of globalisation.  And America best take note.

They know better than anyone the strength that lies in unity.

Insight

Africa invests in Africa

 

Isabelle Alenus-Crosby

A growing number of African countries are rapidly joining the ranks of prominent investors across the continent.

According to the International Finance Corporation (IFC), the rate of FDI projects from emerging markets has grown at a healthy compound rate of over 21% since 2008 (triple the amount from developed markets). The top investors were still India, the United Arab Emirates and China at the start of 2013, but intra-African investment has become very impressive since then. Nobody knows Africa better than Africans, and continued political stability across the continent is making them trust their own. The beauty is that increased economic stability and growth is allowing them to help accelerate the African success story through rapidly increasing cross-border investments.

SA has been at the forefront of the growth in intra-African trade but Kenya, Ghana and Nigeria are also investing heavily this year. From 2014, it is expected that countries like Angola and Mozambique will join their ranks.

The star performers, so far, in 2013, are Ghana, Nigeria, Cote d’Ivoire, Kenya, Tanzania, Zambia, Mozambique, Mauritius, Ethiopia, Namibia, Botswana, Angola and South Africa.

THE World Bank’s investment arm will increase lending to sub-Saharan Africa by up to a quarter in 2014 as private sector companies continue to flock to the region. The IFC is expected to make new investments of USD 5bn and Japan will provide USD 2bn worth of financial support over the next five years to back Japanese-owned development projects on the continent. Europe and the United States are also expected to increase their investments dramatically according to the World Bank, which sees Sub-Saharan Africa’s GDP accelerating to almost 6% over three years, driven by investment and commodity prices.

Roughly half the IFC’s annual lending in the region goes to financial markets and institutions to help improve the flow of credit to smaller businesses, which employ most of Africa’s workers. Another third goes to infrastructure projects and natural resources investments. The expanding sets of SMEs is bringing real economic diversification and are giving rise to internationally competitive companies, thereby providing access to global markets, and consequently higher wages and salaries. This, in turn,  leads to the rapid growth of the middle-class and further political stability.

Even the most cautious investors have to admit that all the excitement surrounding Africa is grounded on solid analytical soil. The evidence might be that within a decade Africa will be its own biggest investor. I honestly cannot wait.

Insight

President Mahama’s message at The Times CEO Summit Africa was very clear: Invest in people and infrastructure

 

Isabelle Alenus-Crosby

Africa’s future as the world’s economic engine rests on investing in its one billion people, President Mahama of Ghana said in a speech at The Times CEO Summit Africa today. “Investments should focus on people, providing them with jobs”.

Mr Mahama delivered his keynote address at the third CEO Summit Africa, which is held every year in London. The two-day summit which was held on April 29th and 30th this year, brought together Chief Executives of Africa’s biggest businesses with International Investors. The President’s address also focussed on Ghana’s readiness for business and the opportunities available for partnership with its private sector to expand the infrastructure base of the country.

Most of the continent is going through an unprecedented period of stability whilst an economic revolution is sweeping across it. With more investors coming in every day, Mr Mahama shouldn’t worry. Africa’s equity markets are hot and a virtuous cycle has already emerged. And the good news doesn’t end there. The Economist reported at the start of 2013 that a rapid increase across the full investment spectrum is expected within the next couple of years. People across Africa therefore have good reason to be optimistic. According to the IMF, 84% believe that they’ll be better off in two years.

Another possibility, of course, is that they’ll be much better off.

Insight

More good news for Africa: Consumer spending and private investment is up

 

Sarah Caddy

Consumer spending, which accounts for more than 60 % of Africa’s GDP, remained strong last year according to a World Bank report.

The trend was driven by declining inflation across the continent and improved access to credit in Angola, Ghana, Mozambique, South Africa, Nigeria and Zambia.  In addition, interest rates were much lower in 2012 than in 2011 and we witnessed a spectacular rebound in agricultural income thanks to stable weather conditions. Especially Guinea, Mauritania and Niger experienced good rains compared to 2011, but less crops failed in general across the continent compared to the previous years.

We also have to add the steady remittance inflows to the good news coming from Africa, currently estimated at $31 billion.

Not to be sneezed at are the increased investments that are supporting the region’s growth performance. In 2012, for example, net private capital flows into the region increased by 3.3 % to a record $54.5 billion; and foreign direct investment inflows to the region increased by 5.5 % in 2012 to $37.7 billion.

The World Bank report also mentioned that exports are increasingly helping the continent’s growth and that the traditional destination of these goods over the last decade is also changing. Since 2000, the overall growth of sub-Saharan exports to emerging markets and other African countries has surpassed that to developed markets. Africans are increasingly selling to and buying from other Africans, which is the best news of all.

Insight

The “Where and Why” of investing in Africa

 

Isabelle Alenus-Crosby

Gong recently hosted a breakfast meeting chaired by The Economist’s Business Editor, Robert Guest.

One of the topics discussed was that too much “ignorant” money is going into Africa simply because there are not enough listed companies outside of Nigeria. The big question is therefore “where to invest?”  Where are the various opportunities that tomorrow’s Africa presents, and what makes one country more attractive than another?

With 54 diverse markets offering unique prospects and challenges, most delegates had different opinions.  What they didn’t have however, was conflicting opinions. Most agreed that there are still only a handful of  good entry point to expand into Africa today.

Here are the top 5.

1. With a population of 170 million people, a growing middle class, and a reputable stock exchange, Nigeria is a notable market for those looking to target a large consumer base in Africa. With reformed petroleum regulations, Nigeria has also become an appealing market for multinational companies.

2. Ghana is doing incredibly well and has proven to be politically stable. The fact that Ghana and Nigeria have space programmes is a measure of how much these two countries are ahead of the game. The difference between Ghana and other countries is that everything (power, institutions, infrastructure) works. With the discovery of offshore oil, the country now really has everything to soon be claiming the number 1 spot.

3. Kenya is more business friendly compared to other regions on the continent. In addition, there is access to good human capital, excellent IT infrastructure, and IT skills.

4. Tanzania has always been politically stable and is therefore emerging as the most effective gateway for trade into Eastern, Southern and Central Africa. It has lucrative investment opportunities in infrastructure, privatization and value-adding facilities, and oil has recently been discovered off-shore.

5. Mozambique is developing at a rapid pace, has much oil and is also politically stable.

I should add that Ethiopia received an honourable mention at the Gong breakfast meeting; It has become Africa’s fastest-growing non-energy economy and Diageo and Heineken recently paid nearly $400m combined to acquire state breweries in the country. Ethiopia is not for the faint-hearted, however. Its population of 85 million people still ranks among the world’s poorest.

The conclusion was to watch what the diaspora is doing – and  they are returning first and foremost to our top 3.

Insight

Africa’s Brain Gain – Implications for Kenya

 

Isabelle Alenus-Crosby

In the past couple of years, Africa has received an ever increasing amount of good press thanks to its unfaltering growing collective GDP.

One of the direct results of this positivism has been that the continent’s brain drain is slowly reversing, and turning into a brain gain instead.

In order for this return of the diaspora to last, stability is just as crucial as booming economies. This is why Ghana has been on top of the list for the past decade.  Should Kenya have trouble-free elections in March, it is expected that many “diasporans” will return there too.

Understanding the importance of the upcoming elections, Kenya’s mobile operator, Safaricom, has partnered with Sisi Ni Amani, an NGO, and launched an SMS platform to promote the peace. This platform will allow community “peace” ambassadors to send out positive messages targeted at specific incidents at a micro level with the aim of preventing, reducing or stopping election violence.

With so much at stake, the Kenyan government has adopted a new constitution and made widespread modifications to its electoral system. A significant change is that the new laws enable diaspora voting. By giving diasporans the power to have their say, they might feel more inclined to return home and play a crucial part in the new Africa.

After all, this is history in the making, and who wouldn’t want to be a part of it?

Insight

African GDP – growing faster than previously thought?

 

Isabelle Alenus-Crosby

There have been various reports in the news lately that the impressive GDP statistics posted by countries across Africa may actually be underestimations, and that the continent’s outlook could be even better than previously thought.

GDP growth is correlated to a variety of data, and if this data is sparse (which is still very much the case across Africa), whole swathes of economic activity can be overlooked. Simply put, growth is measured by comparing current data to the base year. But without sufficient data, many “new” sectors, such as mobile telephony, have nothing to be compared to. And these new sectors have been growing quickly and steadily across the entire continent for almost a decade.

Until 2010, Ghana was using a 1993 base year. When it was finally revised by the statistical office, GDP estimates rose by over 60 %, translating to approximately 13bn USD of economic activity. Nigeria’s base year is still set at 1990. An upward revision is therefore imminent and likely to be even more impressive than Ghana’s. In fact, economists are predicting that the GDP for the whole of sub-Saharan Africa will rise by at least 15 % in the next couple of years! Where’s the champagne?

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