Multinational corporations (MNCs) moving into Africa want supply chain efficiencies that can optimise balance sheets and the use of working capital, says Standard Bank.
According to Kent Marais, the bank’s head of transactional products and services product management there is still interest from MNCs to expand into Africa due to the higher growth rates on offer than elsewhere in the world, but expectations have grown around more sophisticated solutions.
“Many of these MNCs have been exposed to markets like the US and Asia,” he says. “This means they expect a greater degree of financial sophistication than what many of the markets in Africa have delivered in the past. They are looking for more innovative solutions which can better support their overall working capital requirements, as they expand within Africa.”
While Africa remains a “a huge investment opportunity”, corporate treasurers are under pressure to improve working capital life cycles and ensure they have enough cash on hand to effectively operate. Their daily tasks include managing that cash, debtors, creditors and the financing needs in their supply chain, which is getting tougher due to the weak economic conditions.
“The fact that oil and other commodity prices have been declining means certain economies have not been doing well; but if you look at the forecasts, growth rates in sub-Saharan Africa remain above world averages,” says Marais.
According to the International Monetary Fund’s (IMF) economic update in January, most countries in sub-Saharan Africa will see a gradual pickup in growth, but to rates that are lower than those seen over the past decade. Projections for the region remain relatively high at 4% in 2016 and 4.7% in 2017 – versus 2.1% for advanced economies in both years.
Several headwinds facing growth in African markets, including the lower commodity and oil prices, higher borrowing costs and the slowdown in China, need to be managed carefully.
“Africa needs to become more self-sustainable in these conditions. But MNCs are still very interested in the higher growth rates that are on offer,” says Marais. “What we are seeing are ongoing expansion plans around infrastructure and investment into local industries and far more optimistic outlooks as a result.
“There are a lot of positive moves happening and there are superb growth opportunities in the making, in certain regions supported by proactive policy changes to support the opportunities.”
Investment is being enticed back into these countries as a result, but this is raising the bar for improved levels of financial sophistication across the supply chains. Marais believes companies that are at the front of solution innovativeness will be well placed to capitalise on Africa’s growth opportunities.
“As a bank, whilst focusing on immediate needs of the continent, we are also keeping an eye on the future. We need to strike a balance between the current investment trends and investment in new technology, to meet current and future client needs.”
This will require high levels of sectoral specialisation to assist large companies manage sophisticated supply chains, often across multiple jurisdictions on the continent.
“Liquidity can still be sourced, but it comes at a price. However, if you can work closely with clients to better understand their long-term strategies and business models you can work on solutions that optimise supply chains better,” concludes Marais.