Multinational companies moving into Africa are looking for supply chain efficiencies that provide market-leading solutions that can optimise balance sheets and the use of working capital, says Standard Bank.
According to Kent Marais, head of transactional products & services product management at Standard Bank there is still interest from multinational companies to expand into Africa due to the higher growth rates on offer than elsewhere in the world, but expectations around more sophisticated solutions are much higher than they were in the past.
“Many of these multinational companies have been exposed to markets like the US and Asia. This means they expect a greater degree of financial sophistication than what many of the markets in Africa have delivered in the past. They are looking for more innovative solutions which can better support their overall working capital requirements, as they expand within Africa,” he says.
While Africa remains a “a huge investment opportunity”, corporate treasurers are under pressure to improve working capital life cycles and ensure they have enough cash on hand to effectively operate. Their daily tasks include managing the cash on hand, debtors, creditors and the financing needs in their supply chain, which is getting tougher due to the weak economic conditions. “The fact that oil and other commodity prices have been declining means certain economies have not been doing well; but if you look at the forecasts, growth rates in sub-Saharan Africa remain above world averages,” says Mr Marais.
According to the International Monetary Fund’s (IMF) economic update in January, most countries in sub-Saharan Africa will see a gradual pickup in growth, but to rates that are lower than those seen over the past decade. Projections for sub-Saharan Africa remain relatively high at 4% in 2016 and 4.7% in 2017 – versus 2.1% for advanced economies for both years.
There are still a number of headwinds facing growth in African markets, including the lower commodity and oil prices, higher borrowing costs and the slowdown in China, which need to be managed carefully.
“Africa needs to become more self-sustainable in these conditions. But multinational companies are still very interested in the higher growth rates that are on offer,” says Mr Marais. “What we are seeing are ongoing expansion plans around infrastructure and investment into local industries and far more optimistic outlooks as a result. There are a lot of positive moves happening and there are superb growth opportunities in the making, in certain regions supported by proactive policy changes to support the opportunities,” he says.
Investment is being enticed back into these countries as a result, but this is raising the bar for improved levels of financial sophistication across the supply chains. According to Mr Marais, companies that are at the front of solution innovativeness will be well placed to capitalise on Africa’s growth opportunities.
“As a bank, whilst focusing on immediate needs of the Continent, we are also keeping an eye on the future. We need to strike a balance between the current investment trends and investment in new technology, to meet current and future client needs,” he says.
This will require high levels of sectoral specialisation to assist large companies manage sophisticated supply chains, often across multiple jurisdictions on the continent. More risk-managed, efficient and cost-effective solutions are needed to facilitate these transactions and services across industries where access to cash and cost thereof can differ greatly.
Understanding the client needs and the markets they operate in, is key in providing trade solutions which address these needs. By implementing trade solutions we obtain a more detailed view of each underlying transaction, which could lead to lower capital requirement, which in turn may lead to more cost effective solutions to clients.
While liquidity constrains exist in mainly oil-producing jurisdictions, Standard Bank can utilise its network across 20 African countries and its ability to plug into major international centres, to help structure financing solutions.
“Liquidity can still be sourced, but it comes at a price. However, if you can work closely with clients to better understand their long-term strategies and business models you can work on solutions that optimise supply chains better,” he says.
“We believe in Africa and want to partner with our clients to position them for growth, which is vital for the continued development of the continent, trade is fundamentally important to that,” says Mr Marais.