African financial services sector
Key decision-makers in Africa’s financial services industry are positive about the outlook for their sector, with widespread optimism about future opportunities. This is the overall conclusion of a survey by ACCA (the Association of Chartered Certified Accountants) called Financial Services in Africa – the regional perspective to be unveiled at the ECSAFA conference today in Malawi.
The respondents – many of them senior ACCA members, including leading managers in financial services companies, regulators, users and opinion-formers in seven African countries (Botswana, Ethiopia, Kenya, Nigeria, South Africa, Uganda and Zambia) – concluded that many of the key precursors to successful development in the sector were already in place. These included:
• increasing political stability,
• increased levels of foreign direct investment
• enhanced infrastructure and privatisation
• improved regulation and governance
• and anti-corruption legislation.
Most encouragingly, overall key conclusions showed that competition was welcomed by respondents, rather than being seen as a threat. From Ethiopia to South Africa, there was general agreement that monopolies should be broken down. The opening-up of markets to national, pan-regional and foreign banks was seen as a key contributor to the development of the sector, as it had focused local banks’ minds on providing relevant products and strong local service.
Simon Burdett, head of ACCA’s corporate development in Southern Africa, said: “This report provides a high-level overview of developments in financial services in the region, at a time of rapid development in many areas of the industry. We are pleased to record that senior managers across many countries share measured optimism with respect to prospects for this sector.”
The report’s conclusions also highlighted a number of priorities by respondents seen as essential for the creation of genuinely market-oriented financial services, with respondents conceding that a number of material challenges remain to be addressed.
• Certain regions in Africa still have to reach a level of corporate governance, protection of intellectual property rights and a legal system which is acceptable to outside investors.
• Large proportions of the populations in many countries remain ‘unbanked’, with customers unaware of the benefits of financial products and without access to appropriate technology.
• There is an urgent need to provide greater credit support to Small and Medium-Sized enterprises (SMEs), which is seen as the greatest opportunity for growth in the financial sector.
• Legislative reform is still needed in some countries in respect of capital markets, pensions, auditors and directors. Furthermore, a desire for more consultation from law and policy-makers on proposed changes to laws and regulations has been identified, to ensure a proper fit with the continuing development of the sector. There was also some concern at the impact of international regulations in financial services and the ability of emerging sectors to implement new standards within current business models.
• More education and awareness is needed in finance and technology, while risk management issues need to be addressed.
• Sharper legislative teeth should be developed to provide quicker, more effective ways to pursue individuals and organisations defaulting on loan repayments, which undermines industry confidence and arrests the development of a stable culture of entrepreneurship.
• Greater engagement with shareholders is a priority, to help ensure they take a more active and informed interest in the development and performance of the institutions and help to enhance accountability.
Simon Burdett added: “Some of the problems identified were viewed as opportunities. For example, the large ‘unbanked’ populations and the SME sector represent exceptional growth prospects for the provision of micro-finance initiatives, especially on the back of increased economic activity in rural areas among farmers and entrepreneurs.”
He continued: “Reform and stability in many areas across the continent has raised the bar in terms of the need for a broad range of banking and other financial advisory services. But the industry is rising to the challenge confidently. Similarly, the growth in foreign direct investment is putting pressure on domestic economies to improve governance and legislation standards. Our report aims to highlight areas which need to be prioritised in order for the industry’s potential to be realised and to obtain the right balance between the African banking sector and the opportunities for international competitors.”
Burdett concluded: “Ultimately these findings are encouraging. There is a great deal of confidence that African banks and financial services can rise to a host of challenges, including legal reform, technology, training and deployment of skilled professionals and international competition.
“By identifying these key trends and challenges, we hope this report encourages debate about areas of focus for future development and stability in the industry, including ‘leap-frogging’ of old technologies to achieve innovation. But we have also identified areas for attention: the need for credit agencies and for sharper legal teeth to deal with debtors; for greater shareholder engagement and shareholder education programmes; improved training and skills transfer; and, perhaps most importantly, the introduction of customer focused products and services.”