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Industry sage slams ‘ignorant’ western banks

By Thierry Ogier, Sid Verma
25 May 2010

Billionaire business guru Mo Ibrahim has blasted “ignorant” western bankers for failing to shore up their African operations, amid fears that global banks’ capital constraints will derail the continent’s quest for external finance

Billionaire business guru Mo Ibrahim has blasted “ignorant” western bankers for failing to shore up their African operations, amid fears that global banks’ capital constraints will derail the continent’s quest for external finance.

“There is a huge gap between perception and reality,” Ibrahim told Emerging Markets in an interview in Abidjan.

Investment in Africa has achieved amongst the highest rates of return anywhere in the last five years, according to the World Bank reports, he said.

“Unfortunately, investors and bankers in the US and Europe are just too damned lazy or ignorant, because they don’t read those reports.”

The Sudanese founder of pan-African telecommunications giant Celtel said western banks are failing to develop research, products and services, which is slamming the brakes on corporate expansion in the region.

“Companies of the same size in India are likely to be covered twice as much as [those in] African countries. It is total ignorance and lack of data about what is happening in Africa. When you have ignorance, you have a lack of investment.”

Sub-Saharan Africa holds 0.8% of the world’s bank assets, 1.3% of global stock market capitalization, and 0.2% of public debt securities, according to the IMF’s 2008 figures.

Cyrus Ardalan, vice-chairman at Barclays Capital, said leading western banks will face capital constraints in coming years and are therefore likely to focus on servicing core clients. “In this environment, the expansion of western banks in Africa is likely to be more challenged,” he told Emerging Markets.

AfDB chief economist Mthuli Ncube said that balance sheet pressures have caused western banks to restrict credit lines to African exporters, while many have downsized project finance businesses.

He feared the eurozone crisis would exacerbate this credit retrenchment. “Western banks can not be seen to be taking risks, so they will reduce their exposures to Africa”, he told Emerging Markets. “Credit lines to the western banking sector will be hit significantly.”

Bill Appleby, Citigroup’s head of infrastructure and energy finance for Europe, Middle East and Africa, commenting on the African project finance business said that many western banks “have struggled through 2008-09, and now they have more aversion to committing long-term capital.”

The chief executive of a leading pan-African bank said that fewer big investment banks seeking to step up their African operations in the post-credit crunch landscape. “They have reduced their exposures and that has left a bitter taste after years of telling us that they are committed for the long-term”.

Stephen Jennings, chief executive officer at Russia-based Renaissance Capital investment bank, said: “We structure small-sized deals, which gives us a competitive edge. [But] western banks are not going to research an asset and then originate small deals in the likes of Guinea. They will come in for financing at a later stage.”

Africa’s lack of integration in the global financial economy has caused an information deficit about the exposure of western banks in the region, Ncube said.

Nevertheless, not all global banks are downsizing. At the end of April, Citibank moved to up its share in Kenya’s corporate debt market while Royal Bank of Scotland last month joined forces with South Africa’s Nedbank.

But Ibrahim said the investment rationale for Africa is compelling and should feed risk appetite at global banks. “Africa is hungry for services and products. Three quarters of our people are young people.”

By Thierry Ogier, Sid Verma
25 May 2010