Deepening Africa’s Financial Sector

by Wesley Cate

If any of our readers have followed ISOKO’s narrative for any length of time, they will have likely seen that Africa is experiencing unprecedented economic growth. The sub-Sahara has sustained 5% growth for about the last ten years and has seen substantial increases in capital flows, FDI, portfolio equity, loans, bank debt, and bond flows. In 2007, The Economist showed a marked increase in net inflows into shares and private credit in sub-Saharan Africa (SSA). In 1994, South Africa received Africa’s first sovereign credit rating from S&P. Today there are 14 countries with sovereign credit ratings that have culminated in a tradable African index. In the period from 2000 to 2006, Africa saw financial inflows nearly double from $159 billion to $290 billion (OECD 2009). All this to say, there is a lot of money moving through Africa at a rapid pace—a reason for celebration but also urgency.

The 2008 crisis exposed the African economy’s unhealthy attachment to commodity price fluctuations. Post-crisis, diversification and capital diffusion are of the utmost importance for growth, stability, and productive investment. According to a report by the OECD, “Therefore, one of the most pressing issues for Africa is to channel existing resources into productive investment so that they can stimulate productivity, create employment, provide individuals and enterprises with basic utilities, and contribute to natural resource management.” Moving forward Africa’s economic vitality relies on the ability of its financial markets to attract and channel investment to productive ventures. However, the same OECD report identified a series of inhibitors to the deepening of financial markets in sub-Saharan Africa: an inadequate regulatory framework, a dysfunctional banking sector, underdeveloped capital markets, and a lack of innovative financial instruments.

To be sure, the level of financial readiness varies from country to country. A 2011 report by Accenture lists South Africa and Mauritius as countries with well-established financial markets followed closely by Nigeria and Botswana. “Next movers” include Ghana, Kenya, and Senegal amongst others. Some of those trailing are Tanzania, Uganda, Angola, and Ethiopia. Glaringly absent from the report was Rwanda, a country known for attracting big-hitters like Starbucks and Costco. But even while Rwanda draws the eye of would-be investors for its stability, zero corruption policy, and ease of doing business it inhibits further opportunity because of a deficient financial sector.

Recognizing the growing need for a financial backbone to support Rwanda’s burgeoning business and investment sectors, ISOKO Institute’s parent organization Bridge2Rwanda has teamed up with the gold standard of financial instruction, Training The Street (TTS). The program, sponsored by JPMorgan Chase & Co, is a five-day intensive training session for participating institutions and their in-house analysts.

Through this program, Bridge2Rwanda hopes to build a critical mass of financial analysts to support the inflow of investment capital and make Rwanda into a beachhead for FDI in Africa. “Bridge2Rwanda, TTS, and JPMorgan Chase are excited to offer this world renowned training program that will take the finance and banking industry of Rwanda to the next level,” said Bridge2Rwanda and ISOKO Institute CEO Dale Dawson. “In much of the western world this program costs thousands of dollars per participant. We are excited to offer it to Rwanda at a fraction of the cost. Our hope is for Rwanda to set the financial standard for the rest of the continent.” Participants will graduate from the program with the necessary skills to tackle everything from financial modeling and deal valuations, to preparing for the CFA exam.

As mentioned previously, Africa’s financial sector is relatively small and fragile. So as investors eye the continent’s high monetary and social returns, a deepening of the sector is urgently needed. According to Dale Dawson:

Before they can act, investors require accurate, transparent and reliable information about an enterprise’s financial performance. There is an accepted global standard for the presentation of financial information. For Africa to accelerate FDI, local finance and accounting professionals need to produce and present financial performance information to potential investors in a way that is consistent with the standards used globally in more developed economies.

Strong, efficient financial institutions coupled with a pool of skilled financial analysts will be required to help properly facilitate financial transactions, especially foreign direct investment (FDI).

Through the Training The Street curriculum, the Financial Analyst Training Program infuses participants with the skills they need to attract world-class firms into Africa. “This is important now, because increasing FDI is a essential to accelerating the growth and development of Africa’s private sector,” Dawson said. Bridge2Rwanda’s efforts are essential at a time when investors are looking to Africa, rather than Asia, to provide the high returns available in emerging and frontier markets.

Click to read more about B2R’s Financial Analyst Training Program.