Kenya’s frontier finance for DRC
Kenyan banks and financial services firms are positioning themselves to capture more of the Democratic Republic of Congo’s (DRC) massive market of 78 million people.
Kinshasa is relaxing investment laws and making it easier for foreign companies to set up businesses. The country is also trying to attract new banks by rolling out cashless payments for civil servants and significantly reducing the capital required by banks to support lending. Kenyan lenders hope to ride the investment wave.
Equity Bank is one of the most active Kenyan financial firms in the DRC. In 2015 it acquired a 79% stake in the DRC’s ProCredit Bank for KSh4.5bn ($43m). “We’re the largest African investor in DRC,” says Philip Sigwart, Equity Bank’s director of small and medium-sized enterprise banking and a director of ProCredit Bank Congo.
In 2016, Equity posted profits of $4.83m from its DRC operations, making this the bank’s third most profitable country after Kenya and Uganda. The bank has announced plans to roll out mobile-money services and expand its footprint in the DRC.
Other East African banks are also eyeing the DRC as a place for growth. Kenya Commercial Bank, the region’s largest lender with assets totalling $5.7bn, has said it would like to launch operations in the DRC by 2020.
Aly-Khan Satchu, a financial analyst based in Nairobi, says: “The DRC obviously has an enormous population, and banks have been looking at it as a growth opportunity for some time.” He adds: “Equity has a strategy of regional expansion that uses a mobile-banking model so you don’t need expensive branches. This is a good model to take there, and I expect this to be worthwhile in the medium-term.”
Meanwhile, East Africa’s largest insurer, Jubilee Insurance, partnered in 2015 with DRC’s state-owned insurance company Société Nationale d’Assurances (Sonas) to provide medical and life insurance products. Jubilee is in the process of acquiring its own licence to operate in the DRC. For decades, the government was hostile to foreign insurers, and Sonas held a monopoly. But in March last year, the government amended the insurance laws to allow foreign insurers to operate. Insurers must have a minimum capital base of $10m to be granted a licence.
The Brazil of Africa
“Jubilee has been expanding regionally before anyone else even thought about it,” Satchu says. “They’re quite clever. They become a provider to big organisations like the United Nations so they have demand that they can build on.”
These East African investors say they see the long-term potential and can tolerate some short-term dips. Growth in the DRC’s economy has slowed due to political uncertainty and the downturn in commodity prices. Gross domestic product grew by 2.4% last year, a sharp decline from 6.9% growth in 2015. Inflation also surged to 12% last year, up from 1% in 2015.
These factors have encouraged the government in Kinshasa to pursue policies to attract fresh investment. According to Emmanuel Ali Nasibu, the DRC’s deputy ambassador in Kenya, East Africa is one of the regions that is best suited to investment. “The DRC economy has become very small. We are working towards ensuring that doing business in this country becomes much easier,” Nasibu told reporters.
The DRC’s political impasse – caused by President Joseph Kabila’s refusal to hold elections that were due in 2016 – has also got East Africans worried. Equity Bank’s Sigwart says the political situation is “challenging”, but he encourages investors to see the country’s potential. “In the long-term, the DRC could become the Brazil of Africa,” Sigwart says. “It has literally everything: it has land, it has potential for agriculture, it has mining industry, it has water for electricity production, so in a way, it’s very similar to Brazil.”
This article first appeared in the December/January 2018 print edition of The Africa Report magazine