Ball is in Africa’s court to grab trade opportunities

2010-01-16 14:48

THE state of Africa and its outlook have long offered a rich seam

for commentators to mine for evidence to support one or other policy

prescription.

However, in recent times we have frequently seen that no sooner is

the “Africa debate” ­declared settled than shifts in global and local realities

render many predictions of impending catastrophe moot.

The impact of the global financial crisis on the banking sector in

the recent past and the shifts now under way in Africa’s trade patterns are two

such areas where events on the continent are running counter to much

conventional wisdom.

South Africa, as Africa’s most developed financial services market

with the tightest connections to global financial centres, might have been

expected to ­experience the worst contagion from a banking crisis that ­required

significant government intervention elsewhere. However, South Africa’s banks are

emerging better than counterparts in many developed markets. Why?

South Africa’s financial sector is stable, largely because of a

sound regulatory environment and managements that try to ­remain prudent through

up and down cycles.

The banking sector has chosen to employ low levels of gearing

(lower debt compared to shareholders’ funds) of about 16 times, compared to

ratios of 30 times and more by US and European banks before the crisis.

South African banks have high levels of capital, with capital

adequacy ratios (shareholders’ own funds) of around 14%, against a regulatory

minimum of 9.75%. Many of the developed market banks had capital adequacy ratios

of 6% to 8% before the crisis.

The temptation to grow loan-to-deposit ratios above 100% has been

resisted, standing at around 95% compared to 130% and more in US and European

banks.

In addition, South African banks do a large amount of securitised

lending with lower losses as a proportion of non-performing loans when defaults

occur.

Many first-world banks are still dealing with the consequences of

taking lower levels of security, especially in business and corporate

lending.

The result of strong regulation and managements that have avoided

going with the flow is a financial market that punches far above its weight in

global terms. Recent research by Standard Bank’s economics division shows that

Africa has begun to benefit from changing trade patterns in which Brazil,

Russia, ­India and China (the BRIC countries) feature prominently.

The BRICs’ proportion of world trade rose from 6.3% in 2000 to

12.8% in 2008. Africa’s proportion of total global trade declined from 4.6% in

1983 to ­only 1.7% in 2002 before climbing up to 3.0% in 2008, almost

­singularly because of strengthened ties with the fast-growing BRICs.

BRIC-Africa trade has ­increased hugely from $22.3 billion (about R165 billion)

in 2000 to $166 billion in 2008.

Commercial and development assistance to Africa has been ­inspired

by unprecedented diplomatic initiatives by the BRICs.

Since coming to power in 2003, Brazil’s President Lula da Silva has

paid more official visits to ­Africa, covering more countries, than any other

BRIC head of state. Since 2000 China has ­arranged 18 high-level visits to

Africa encompassing 38 countries. This is more than for any other BRIC

nation.

The relationship between the BRICs and Africa is one rooted in

mutual advantage. With the BRICs, Africa has the opportunity to foster

formidable commercial and strategic alliances, cognisant of its own equal value

and unburdened by the duties and conditions which have epitomised Africa’s

relations with its traditional partners.

For the BRICs, engaging with Africa is not a unilateral act of

goodwill; it makes economic and strategic sense. Africa’s 53 states with growing

clout on the global multilateral stage, natural ­resources and promising

consumer markets provide the BRICs an opportunity to gain footholds in countries

likely to spend the next two decades growing at rates greater than the global

average.

To be an active partner in ­reversing its marginalisation, African

governments and firms must be more assertive in taking advantage of preferential

access to BRIC markets. For example, China offers duty exemption on more than

400 African exports, but few governments actively take advantage of this.

There remains a world of possibility for those with the vision and

the will to reach for it.

  •  Maree

    is the chief executive of Standard Bank. He is part of the SA delegation to the

    World ­Econo­mic Summit in Davos later this month.

 

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