In DepthColumnsFinance: Follow the money

Wed,22Nov2017

Posted on Thursday, 13 September 2012 17:59

Finance: Follow the money

Patrick Smith

The whispered advice to those doyens of investigative journalism – Carl Bernstein and Bob Woodward – that they should 'follow the money' is a useful guide to Africa's prospects.

 

New money is flowing across Africa in three important ways as this special finance edition of The Africa Report makes clear. The first is the growth of intra-African trade.

Accountants Ernst & Young calculated that there was a 27% increase in intra-African projects last year. They went on to find that 17% of all new projects on the continent involved one African country making investments in another.

South Africa is now the fifth-largest investor in other African countries, surpassed only by China, Britain, France and the United States, which are overwhelmingly involved in oil and mining operations, while South African investors fund manufacturing and retailing.

Further north, Nigerian companies increased their African investments by 78% between 2003 and 2011, and Kenyan companies increased theirs by 73% over the same period.

That is why the officials and economists from the African Development Bank and the Economic Commission for Africa have been pressing leaders attending African Union summits to push for a pan-African free trade area by 2017.

The second new wave of money flow is the growth of cross-border banking to quench the thirst for intra-African trade finance. These banks are also backing the launch of big regional projects.

Morocco, Nigeria and South Africa lead the charge with their banks expanding first within their own region and then looking further afield.

Big South African banks are still looking for acquisitions in Nigeria, we hear, while Nigeria's banks are making tentative forays into the South African market.

Kenyan banks, in particular, are looking to play a lead financing role in joining up the nascent oil and gas economies of East Africa.

The rise and rise of Togo-headquartered Ecobank is instructive; it has found a substantial market in what it calls 'middle Africa', which is no longer divided into the old regional economic zones.

Still reeling from eurozone and North American financial woes, the big Western banks are watching closely.

The bigger banking groups are hurriedly setting up offices in Africa. JPMorgan Chase & Co. started offering rand clearing services last year and plans to open a branch in Nigeria in 2013.

Credit Suisse set up an office in South Africa in 2010. Barclays moved its African headquarters to Johannesburg in June 2011 and has joined the chorus of Africa-boosting banks, helped by Maria Ramos, the chief executive of ABSA, in which Barclays has a 56% stake.

Both HSBC and Standard Chartered have tried, and failed, to take over South Africa's Nedbank, which is reporting substantial profits growth this year.

The most significant foreign foray into African banks remains that of the Industrial and Commercial Bank of China, which paid $5.5bn for a 20% stake in South Africa's Standard Bank in 2008.

Against this positive picture of growing trade and financial ties on the continent, there are worries about how the West's financial jitters could reduce Africa's access to trade finance or at least raise its cost substantially as European banks struggle with their continent's own indebtedness.

New entrants from Asia and Latin America will see opportunities in Africa's banking business.

The third significant money flow is that heading towards the exit.

Comprehensively documented by Léonce Ndikumana and James K. Boyce in their book Africa's Odious Debts, illicit capital flows out of Africa between 1970 and 2008 are estimated at more than $700bn.

Washington-based Global Financial Integrity reckons they could be as high $1.8trn for the period.

Mispriced trade contracts and tax evasion were the most serious sources of loss, with corruption playing a small but key facilitating role.

The old argument that capital flight just reflects the continent's high political risks is no longer accepted.

As export markets tighten and aid budgets fall, expect to see more determined efforts to staunch these flows and keep the capital in Africa●



Patrick Smith

Patrick Smith

Patrick Smith is Editor-in-Chief of The Africa Report. He has edited the political and economic insider newsletter Africa Confidential since 1992 and was associate producer on a documentary about the 2004 coup attempt in Equatorial Guinea commissioned by Britain's Channel 4 television.

 

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