“An African country that manages to raise 2,000 billion FCFA on the international market is very far from bankruptcy”
International financial expert, business banker Moustapha Sow analyzes the issues facing Africa such as financing its development, foreign direct investment and technology transfer. Mr. Sow, a graduate of McGill’s prestigious Canadian university, former Africa Director of Iciec – Islamic Development Bank Group and founder of the investment bank SF Capital, estimates that the $ 2.2 billion Eurobond raised by Senegal last March, illustrates the good health of its economy; but above all shows that Africa is a preferred destination for so-called “savvy-investors”.
What role does a merchant bank like Sf Capital play in the banking system?
Sf capital is a merchant bank, or “Investment bank” in the Anglo-Saxon jargon. The investment banks have as their main role the “council”. For example, in mergers and acquisitions, they evaluate and value businesses for sale or purchase; these actions allow the investor to make the best choice. They also advise companies on the best financial structuring to adopt to raise funds (debt, issue of shares and / or bonds). The same service is offered to states that want to raise debt, who want to adopt the best models of Ppp to meet their need for infrastructure funding.
Our countries suffer from the lack of long-term resources to finance their development. Which solution do you recommend?
The solutions are numerous. First, find a way to better capitalize on our public savings (retirement home, insurance, etc.). We are talking about $ 400 billion across the continent. Second, find the best possible Ppp mechanisms. Then fight the capital flight, for example 80 billion dollars leaves Africa per year (the unpaid taxes of the multinationals represent 60% of this sum). Not to mention the use of the international financial market.
However, it is important for Senegalese to understand the benefits of the international financial market. A company or a state needs to finance itself in different ways, either it does with its resources (we do not have enough, at least not to finance our economies), or we go on the international market. This has succeeded in Africa in recent years. If we look at the latest performances of Senegal and the Ivory Coast with more than 3.6 billion dollars of Eurobond maturity of thirty years, this explains the growing importance of Africa in the global economy, even if we must admit that the path is very long.
The fact of having access to the international market is a performance to be hailed for Senegal, on the international market Senegal is always cited as a reference in Africa, and it is the only market able to provide almost unlimited capital. The savings available on this market is about $ 5,000 billion. Given that Africa has a need for financing its infrastructure, it is enough for it to capture 1% of this 5000 billion to be able to settle this need, because effectively the gap corresponds to the same amount. Africa is 54 countries, only 15 have access to this market. That means it’s a blessing, a performance to salute. I think that the Ministry of Finance deserves more considerations, we must salute the economic and financial health of the country, this is what allowed us to have one of the best financial ratings Standard & Poor’s. Moreover, Senegal is the only country in Africa to see its rating improved.
Do you have any misgivings about currency risks, especially since part of the last Eurobond in Senegal is denominated in dollars?
What we can say is that one of the advantages of a Cfa franc pegged to the euro. Countries like Nigeria, Ghana, Kenya are more vulnerable than Senegal to currency risk, because the stability of our currency depends on the stability of the euro against the dollar. For example, in 2015 Ghana experienced an unprecedented debt crisis caused by a devaluation of the cedi. It is our advantage with Côte d’Ivoire that has access to this market, compared to the rest of Africa. Currency risk exists but we are less vulnerable than many countries, but we need arbitrage.
What is the solution so that Africa, where Islam is very present, can sufficiently capture Islamic finance?
Let me make it clear that the correlation between religion and Islamic finance is not as important as we think. The proof is that the most important place of Islamic financing is London. In addition, the Islamic finance market is growing. We are talking about growth of 70% while conventional finance is growing by 2% with a class of savers that is becoming increasingly important in the Middle East. It is a very liquid market, it could be an additional solution for Africa; some countries like Senegal and Côte d’Ivoire have already resorted to Sukuks (Islamic obligation).
Do you also think that the place of Dakar hosts too many banks?
Most importantly, it’s not the number of banks but what they do. There are about 20 banks, however the economy remains underfunded. Each bank has its strategy, some are there to support the multinationals, others to finance the African economy, etc. In addition to banks, there are microfinance institutions. Senegal is a hub. We can have 40 banks, but if they only finance 10 to 20% of the local economy, it’s as if we finally had one.
Are Public-Private Partnerships the panacea for Africa?
The need for financing to fill the gap is huge in Africa. Only creativity can allow us to absorb this gap. Creativity is the beauty of finance. Several sources are available to finance our savings, we need a mix that allows us to minimize costs and maximize the return on investment. The number one option is to finance yourself with our income (taxes, taxes, etc.). Unfortunately, our countries have not reached a point where they can become self-financing. In Senegal, it is hoped that with the recent discovery of oil and gas, we can rely more on self-financing. We can go to a bilateral or multilateral partnership with the development banks, in the form of loans on quite significant terms. The other part is the debt (bonds, banks). PPP is an excellent tool if it is well used. For a PPP to work well, the state must pay less. Then there is the consumer, the less it is binding for the end consumer, the better. It must also be in line with the country’s development agenda. For example, the best way to finance the energy sector is Ppp. Africa needs $ 2400 billion by 2040 to absorb its infrastructure financing needs. This money must be sought by all means; 1000 billion must come from the private sector, which explains the importance of PPP funding.
Do not you think it’s paradoxical that states are the main issuers of bonds instead of companies?
Yes, it’s paradoxical for several reasons. First, we have to see that in finance, we are lagging far behind the English-speaking countries. Second, our financial markets are less efficient. UEMOA is made up of eight countries while 90% of listed companies (on the Brvm) are Ivorian. That is problematic. Unfortunately, the fact that it is regional does not allow to put in place a better promotion policy to encourage companies to be listed on the stock market. These are the limits of the Brvm. The financial sector is very embryonic so that we can find private companies that can use the bonds. To have an efficient financial market, you need liquidity, enough listed companies, a secondary market and good regulation. The risk on private companies is higher than the risk on the States, which makes it difficult for us to have private companies, especially in francophone countries, to raise bonds. I hope that in the very near future we will be able to see private companies resort to the bond market.
How do you explain the interest of new financing methods such as private equity for Africa?
These are ways to invest or attract conventional capital in emerging countries. Africa is in the process of metamorphosis and that attracts investors. Private equity or venture capital is nothing more than a means of investing. Money is invested in a company that is often in difficulty by buying back part of its capital, righting it and selling its shares. It’s bread for business and for our economies. Private equity is one of the best investment vehicles that can exist, it creates wealth.
Some believe that the state of Senegal is lacking resources while the authorities reassure. How can one get an idea of the financial health of a state like Senegal?
I find this debate a shame. In the world, those who are best equipped to assess the financial capacity of an institution have just injected more than two billion dollars (Senegal’s Eurobond raised successfully last March) over thirty years … This is a unique performance in Sub-Saharan Africa that a country can raise an amount with such conditions. It means that the country’s economy is doing well, that confidence is there. This is what the international financial market, which is the reference, has as a reading of our country. At a time when many countries are struggling to pay their debt, domestic or foreign, we have never had this kind of difficulty. It is not because the state has not honored its internal commitments that it has difficulties as some say. We need to understand how public finances work. There is a budget, all budgeted commitments must be paid. During the year, there are expenses that are not budgeted but which are priorities, then the State makes an arbitration. It can also have unforeseen events. This may explain late payments. And then, a company can execute a project of the State which is not budgeted, it must be included in the budget through a finance law amendment or in the Ptip (Program Triennial of public investments) or in the future budget. Senegal is seen in Africa as a model for budget management and management of the economic and financial situation. I find it unfortunate that we are talking about a state that has just raised $ 2 billion, that it is in bankruptcy or financial problems. On the one hand, there is a lack of communication, the Senegalese need to be informed. The country is undergoing profound economic change, and I think that many Senegalese are not aware of it.
Many Senegalese argue that they do not feel the fruits of growth …
It is true that our economy must be more inclusive. These are the limits of growth rates in some countries where most of the economy belongs to foreign firms. There are projects that the state can and must entrust to Senegalese private individuals. What the private sector creates as wealth needs to be capitalized in the PES. It must be admitted, Senegalese do not like to invest except in real estate, even if there are some exceptions. Much of our growth is driven by infrastructure, which has been funded by the state. So much of the growth is driven by the state. This does not mean that it should not be built because the infrastructure can relocate and facilitate transport. There is work that the state must do to make growth inclusive. If we get to see the emergence of a middle class, it means that there is an economic performance that has been achieved, and it must be accounted for in economic growth. I am confident because, well executed, programs such as Pudc, Puma, Der among others will have a more inclusive development.
Africa is increasingly interested in large distribution groups such as Carrefour and Auchan, which is already present in Senegal. What explains this renewed interest?
This phenomenon is explained by the fact that Africa is mutating, it is no longer a potential continent, but an economic reality that makes investors interested. We are witnessing an increase in the middle class and consumption in countries that have begun to emerge. This is what attracts investors in all sectors. This also explains Auchan’s presence in Senegal.
Do you share the fears of those who think that Auchan is a threat to local commerce?
The case of Auchan is particular, there are different readings to be done. The most important thing is the consumer. People do the analysis from an angle that is not appropriate. We must first see if the product suits the final consumer, then the impact of the investment on the economy (taxes, jobs …). The more structured a company is, the more it creates wealth in an economy. Today we are witnessing an increase in the middle class which is more demanding on quality and prices. You have to be honest and admit that what Auchan offers as products and a range of services, the store does not offer. However, the shop can offer some services like credit, unlike Auchan. It must not be forgotten that it is up to the consumer to decide what is good for him, and if he rushes to Auchan, it is because it suits him. Consumers who prefer credit will go to the retailer next door. The analysis that is done most of the time is a bit biased. There is something positive about Auchan’s coming; there are several African countries where there are no supermarkets. Do not throw everything in the trash.
Retailers will certainly have some concerns about Auchan, however it will at the same time employ people and create wealth. We need to do a cost benefit analysis to find out if a type of investment is better for our economy or not. As long as we do not do that, we will not be able to say if the arrival of Auchan is good or not. If it’s not Auchan today, it will be another company tomorrow. We must understand that an economy is cyclical, and at each stage, actors disappear at the expense of others. The shops will disappear sooner or later, unless they turn to a model more suited to an emerging economy. Pure and perfect competition is considered the best economic model for the consumer, because it allows him to have the best products at the best prices. So if Auchan allows to have this competition why not?
Is investor interest in Africa accompanied by technology transfer as China demands?
Africa is the most complex continent with nearly eight economic integrations. Each country has its realities and its policy of attracting investors. The criteria must be defined from one country to another. We need investors and technology. Each country must ensure that the technology transfer is effective, otherwise we miss a golden opportunity. Africa should have copied the Chinese model, what happens today is that we wake up one day with a turnkey infrastructure delivered when Africans have not been able to benefit from the transfer of technology that can allow them to reproduce the same thing or better. The Africa we want is an Africa that can count on itself to develop.
Interview by Malick Cis,
Source: Le Soleil
