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Société Générale plans to extend Absa partnership to project finance

By David Whitehouse
Posted on Thursday, 11 July 2019 19:08

Frédéric Oudea, CEO of Société Générale, is a fan of the African Continental Free Trade Agreement. REUTERS/Charles Platiau.

Société Générale plans to expand its partnership with South Africa’s Absa to include project financing across the continent, CEO Frédéric Oudea told The Africa Report in an interview.

Société Générale is “one of the very few banks” that can help a growing company to expand across the continent, according to Oudea. He says the French bank is “working actively” with Absa to offer project financing in areas such as infrastructure and renewable energy. Cash management and new technology investments could be shared, he added, but the modalities of expanding the partnership are still being examined and it could take a few months to see the first results.

Attracted by Africa’s young and growing population, Société Générale has pulled out of east European emerging markets such as Bulgaria and Serbia and increased its African focus. The strategy is motivated by the fact that Africa is the only continent where the population will grow “very significantly” over the next 30 years, Oudea said.

According to the African Development Bank, the continent’s infrastructure needs require between $130bn and $170bn a year, with a financing gap in the range of $68bn to $108bn.

  • Société Générale aims to increase its infrastructure financing in Africa by 20% over the next three years.

In January, Société Générale and Absa, which operates in 12 countries in Southern and East Africa, agreed to develop an African wholesale bank offering.  Expanding that partnership “could be beneficial for both our client franchises, given our complementary footprints,” according to Oudea.

The continent’s free trade agreement (AfCFTA) will make it easier for fast-growing African companies to expand their market sizes. Oudea calls the accord “a positive move for stimulating scale”.

New expansion

The bank is performing “in line” with its 2020 Africa targets of annual revenue growth of around 8% and return on equity of 15%, Oudea says.

“There’s a good economic situation in most countries where we operate, for example Morocco, Côte d’Ivoire and Senegal. In most countries we are seeing growth rates of 6%-7% a year.” In the absence of an external shock such as energy prices, the African economies where the bank operates can keep growing, he says.

French retail, the bank’s historic base, is a mature market, and growth will be limited in the long term, Oudea says.

  • Oudea expects that by 2030 the share of the bank’s revenue from Africa will climb significantly from its current level of around 5%.
  • “International retail and financial services will be the growth engine – including Africa.”
  • Société Générale continues to relocate jobs in support functions such as marketing and IT from France to African countries such as Morocco and Côte d’Ivoire.

The bank needs “political stability and robust institutions” in the countries where it operates. Côte d’Ivoire and Senegal are examples that have “benefited from political stability and have done very well for the past 10 years,” Oudea says.

While organic growth will remain important, Société Générale could consider expanding in “one or two” additional African countries.

  • Political institutions, legal and regulatory frameworks and economic growth are among “the parameters that we take into account,” Oudea said. Europe can help by taking a “united stance” on African development issues.

Bottom line:

European banks with mature domestic markets will need to follow Société Générale in seeking to raise the share of revenue they generate in Africa.

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