This podcast is brought to you by Absa, a member of Barclays. Biznews’ Alec Hogg is with Euvin Naidoo, who is on the top team at Barclays Africa, and is also a young, global leader at the World Economic Forum, and here at the Investment Conference, a facilitator of note. Euvin, was your decision to get involved here, stimulated by the fact that you were looking at discussing Africa?
Well, let’s just put this event in context. The Wealth and Investment Management Team really wanted to have a kick-off event and this is an inaugural event for that team. Bringing together thought leaders from across sectors, to discuss the ‘Africa Rising’ story and how we, as South Africans, fit in as investment managers fit in. My part it’s just fantastic to be part of this dialogue.
You had a pretty high-powered panel, all wearing Absa ties, I noticed, or at least the colour of Absa ties. Was that coordinated?
Well, it was amazing. We got these beautiful, gift-wrapped black boxes in the beginning, and I just assumed it was chocolates, but I see it is actually better than chocolates. It’s a lovely red Absa tie.
Clever branding but there was quite a strong, serious message out of it.
Absolutely but a couple of serious messages – the first is, being part of an institution that has a history of more than 150 years on the African Continent. This legacy is what does the next generation mean or how do we take that forward? So being part of that team, thinking through that, is part of this message. Getting stakeholders together and unpacking that.
We’re operating in 12 countries, outside South Africa and I think the real message is ‘it’s a global, local, and regional play’. In the sense that you’re very much a local player – local partners, run by local staff, across the 12 countries. You’re regional because the secret is really to serve customers across borders and what the real muscle that comes with the Barclays relationship is that you bring in that global context, so within capital markets, Alec, you’ll know this more than anyone else. For Africa to truly grow we have to take our place in this global landscape.
It was interesting to listen to one of your panellists, JP, talking about the spreads between sovereign debt in Africa, multi-nationals who actually raise money in Africa as well, and the development of the capital markets, as you’ve mentioned, does seem to be going a pace.
In my day-to-day job at Barclays – I’m the Head of Strategy for Barclays, Africa Regional Management, so that’s managing across 12 countries – corporate investment bank, retail, business, wealth investment management, and insurance. We come across this Africa Rising story, which is often coupled with spreads, 400 basis points above for Euro Bond X, etcetera.
Please explain that.
In terms of attracting the foreign investments obviously, there’s this risk reward/return matrix and certainly investments, particularly in the Euro Bond market, particularly in the offerings. On or above what you’re getting in many of the developed markets.
So you’ve got to pay more if you’re an African country to borrow in the Euro markets, than you would if you were in the U.K…
Yes, absolutely and it is all linked to sovereign ratings. There’s an ecosystem in terms of how you position yourself as a country. Now, Africa will certainly be faced with, what we would call several mismatches. How do you – how can you, as a committed, long-term African entity company investor, capitalise on your deep local knowledge, to make sure that your understanding of that risk ecosystem allows you to view risk differently?
One of the things that came out in the panel is how do you price emerging market/frontier market risk? Typically, it’s your cost of capital plus, probably a country risk premium, plus a liquidity risk premium, etcetera, right. Pretty soon you start seeing these returns stack up but the key point that was put forward by the professionals is that it is not just, “Ah, I’m getting rate plus point-two-five BIPS, in international market versus these attractive returns.
It has to be taken within the context of risk, right, and as a former risk management practitioner, and that’s my basis in banking, all of these are risk adjustor returns. These are the market view on what that rate of return, risk adjusted for that particular market will be. The question is that over a long period of time, is that risk in Africa increasing or decreasing? The answer to that is it depends.
Yes, but what was interesting was that there are pockets of opportunity and, I think that’s what many investors were not aware of – that if you buy MTN Paper in Tanzania you will be able to get a far better yield than MTN Paper in South Africa. How many of these opportunities are there?
Again, it depends on the lens through which you are looking, right, in the one sense…
But MTN is MTN…?
In one sense, just looking overall, and not commenting on any specific corporates. In the one sense one could say, and I saw the ‘ah-ah!’ as you mentioned, go off for many others, saying ‘wow, there are these opportunities that are out there, like the established companies that are there’. From that lens, you could say more than some may have thought. However, what you would notice from the early and late 2000’s is certainly, capital markets are deepening across Africa.
The rule of law is expanding across Africa. All of those tick-boxes are expanding and what’s interesting about that ecosystem is that it goes hand-in-hand with many developments. As technology grows, you have a more empowered electorate. They are more connected. People are expecting more. They’re expecting more for their standards of living. They are expecting more from their Governments.
With that comes the deepening of democratic structures, and ultimately, as banking and financial services practitioners, I am very, very firm in the belief that the deepening of capital markets, across Africa, will continue and it is going to continue to yield benefits across the ecosystem.
Many things we take for granted, from a South African context. As an example, as a South African returning from the U.S. to South Africa recently, to setup and kick-start a career, very much grounded in South Africa – one of the first things you have to do is, you have two kids and a wife, buy a home. Now we would take that for granted, coming from the U.S., we take that for granted. Coming to South Africa, we’d take that for granted.
The simple issue of a home loan for many of our African colleagues, north of the Limpopo, is that product is not as widespread as we may think. Even in countries like Nigeria, to purchase a home – for many people it is a cash purchase, and I’d like South Africans to take a step back (I’m looking at the middle class).
I thought you guys were there, Barclays. Aren’t you in the home loan market and on the Continent?
So Barclays, together with other financial services institutions are in the home loan market, in the vehicle asset finance-market but those markets just, like many other products, are not as deep and as ubiquitous as they are…
The opportunity must be enormous for banks.
Absolutely, now let me explain that ecosystem how it works, and this is where the relationships with governance, these public private partnerships, come to bear. Again, things that we may take for granted here, like credit bureaus or in the U.S., credit bureaus, where you’re able to look at the deep credit history of an individual. From that, you are able to instigate and deploy whether a home loan makes sense (or a vehicle). That luxury may not exist, so the opportunity within the value-chain and ecosystem of financial services is not just that of banks. It is for credit rating agencies.
I’ll give you a classic example. Picture a country in which there is no standardised, national I.D. system, and what’s the repercussions of that? That means an individual could technically borrow from multiple banks and there would be no linkage between that, in terms of getting an overall credit view, and that is by enlarge the foundation of the ability of capital markets, wanting to extend credit. Remember there is always that desire for the market to want to empower. To want to have people gain that access, so for me, the next decade in Africa is all about getting those fundamentals right. It’s not just about physical infrastructure, which is electricity and roads, which offers opportunity.
I love the way that technology is being harnessed by Governments to create the storage of data, national I.D.s, data being stored, allowing people to access these credit systems that will allow them to grow their businesses.
And technology also gives the opportunity for a leapfrog, (as you can hear), Euvin Naidoo, is an Afro-optimist, and that certainly came across very strongly in today’s presentation. He’s with Barclays Africa. This podcast was brought to you by Absa, a member of Barclays.
