The claims of some banks to interregional value creation to shareholders and nurturing of businesses are overstated, considering that the level of intra-Africa trade is very low, analysts say.
Some analysts are concluding that the much-needed positive impact is yet to be felt, particularly in sub-Saharan Africa, (SSA), BusinessDay investigations have shown.
The analysts argue that low intra-Africa trade and common exports of unprocessed commodities by the various countries have left little for banks to either finance or nurture on a large scale, stressing that the development provides opportunity for banks to create niches for themselves.
While some banks operating in Nigeria, including Ecobank (ETI), Standard Bank (Stanbic IBTC) and Standard Chartered Bank, are claiming a greater share of the African market in the area of trade, other local banks like GTBank, UBA, FirstBank and Access, among others, are also billing themselves as pan-African champions, offering their clients products across their jurisdictions in a seamless manner.
Also, the analysts say the rising profile of China, which has diverted the attention of some African countries, and the high commodity concentration of the region’s exports means that SSA countries export the same unprocessed commodities, thus precluding the need to trade.
They further argue that the development explains why intra-regional trade in commodity-intensive regions, such as Middle Africa, where exports mostly comprise oil and metals and minerals, is less than 1 percent of total trade, while over 50 percent of Africa’s exports comprises oil and gas destined for non-SSA countries with refineries and processing facilities that are lacking in SSA.
Renaissance Capital (Rencap) analysts, in a paper entitled ‘Sub-Saharan banks: The pursuit of the pan-African dream’, observed that apart from the East African region which has the highest level of intra-regional trade in SSA with 14 percent and is the most progressive of SSA’s regional groups, banks operating in SSA have not done well.
“Our analysis indicates that there has been limited value creation across the board from pan-African strategies. In most instances, the returns generated in subsidiaries are either negative or fall short of the value created in the home market,” the Rencap analysts said.
Observing that the usual argument from the banks centred along two primary lines of growing intra-Africa trade and following corporate clients as they pursue their own expansion plans, the analysts asked, “How important is intra-Africa trade? Only 13 percent of sub-Saharan Africa’s (SSA) trade is intra-regional (2012 data). Trade between SSA countries is not only very low compared with that of other regions, but it has also fallen by 2 ppts since 1995.”
They further said: “We believe the low level of intra-regional trade in SSA reflects the high commodity concentration of the region’s exports. When South Africa (SA) is excluded from SSA, then intra-regional trade drops even lower, by almost 5 ppts to 8 percent. East Africa stands out at 14 percent. Overall, we believe at this point pan-African strategies cannot be premised on growing intra-Africa trade flows.”
On the claims of the banks that they impact positively on their customers through assistance in expanding their businesses, the analysts said: “Pan-African networks offer zero or limited benefit to retail customers, in our view, and arguably SME businesses as well, given that they are typically limited to in-country operations. Hence the argument is corporates. But how many MTNs, Dangote Cements and Unilevers can be serviced profitability across the continent?
“In our view, our banks would be better off concentrating on in-country profitability than focusing on building unprofitable ‘Cape-to-Cairo’ empires.”
Another analyst, Friday Amah, said last night that the banks need to create a niche for themselves rather than rushing to open branches in “unviable and unfriendly environments”, adding that contrary to the banks’ claims to assisting individuals and corporates, “most of these banks depend on the wealthy individuals and corporates to survive”.
By: JOHN OMACHONU
