EuroFinance

Across much of Africa, treasury management looks very different from the playbook used in developed markets. Currency volatility is high, access to foreign exchange is constrained and hedging instruments are limited or expensive. For multinational companies operating in the region, the priority is therefore less about sophisticated derivatives and more about careful planning.

Treasury’s plays an active role in partnering with commercial teams in establishing go-to market strategy for the country , says Varun Wadhwa, group treasurer at Wood Group , a global consulting, engineering and operations partner.

One of the primary factors we are focused on in Africa is to understand the underlying commercial structure or contract that we are entering into,” he says. Early engagement with commercial teams helps treasury identify “what our foreign currency and trapped cash risks are proactively mitigate these risks

A clear understanding of the contract structure is essential, as it dictates the timing and currency of both revenues and costs. As Wadhwa notes, an effective approach is to distinguish between the local and offshore components of a contract. Wherever feasible, revenues associated with domestic activities are collected in the local currency and offset against local expenses such as payroll, rent, and supplier payments. Conversely, offshore elements of the work can be billed and settled in US dollars , providing better alignment with the cost base and reducing currency exposure.

To optimise financial management in volatile markets, Wadhwa advises collecting cash locally aligned to the local expenses. The remaining portion of the contract to be settled offshore in US dollars in alignment with the offshore scope of the contract. This structure enables teams to actively match-fund their obligations, reduce onshore currency risk and maintain tighter control over cash flows

The same principle applies to suppliers. Where feasible, companies try to structure local payables in local currency, using domestic revenues to fund. By matching inflows and outflows in the same currency, treasury teams reduce the need to hold large balances in currencies that may be difficult to convert or repatriate, Wadhwa added.

Even with such structures in place, there could be FX devaluation risks during the period between billing a client and collecting the payment.

To mitigate this, Wadhwa added tying invoices to a hard currency benchmark such as the US dollar or sterling, even when the final payment must be made in local currency.

“On the day of the payment, the customer need to look at  the official exchange rate and then convert into local currency equivalent amount and pay,” Wadhwa says. This structure eliminates the foreign-exchange risk between billing and collection. Direct payment in foreign currency would be preferable, he notes, but in some African markets regulations do not allow that.

In more developed financial markets, companies might rely on derivatives to hedge such exposures. In much of Africa, however, those instruments are either unavailable or too costly, he noted.

“Our focus primarily has been on how do we look at match funding and eliminating exposure naturally,” Wadhwa says. In many markets, he notes, “there are no instruments and even if they are, the pricing could be quite significant.”

Occasionally, local financial products can offer some protection. In Angola, for example, bonds indexed to the dollar issued by the government provide a way to protect  against currency depreciation, though their availability in the market can be limited.

Liquidity management presents another challenge. Capital controls and regulatory requirements can make cross-border transfers slow and complex.

To navigate this, the company develops country-specific cash forecasts, identifying periods when local liquidity might be tight. If additional funding is needed, treasury may adjust the timing of intercompany settlements or consider short-term borrowing in local currency.

“If you need local currency cash… you could do a short-term working capital loan from a financial institution borrowing local currency to meet the local expenses,” Wadhwa says. As working-capital cycles shift, the loan can then be repaid.

The most persistent challenge in the region is trapped cash, balances that cannot be moved out of a country because of foreign-exchange controls or administrative hurdles

In practice, companies rely on two main channels to repatriate funds: intercompany charges and dividends. Intercompany billing, such as recharging employee costs or internal services, can provide an efficient route for moving cash across borders, if the underlying contracts and documentation are correctly registered with local authorities.

“Intercompany payments are usually the most effective way of repatriating cash,” Wadhwa says.

Dividends provide another route. In some cases, interim dividends can be declared before final accounts are completed, allowing companies to speed up repatriation where balances have accumulated.

Across all these measures, one lesson stands out: managing treasury in Africa requires detailed knowledge of local regulation. “You do need local expertise… understanding how the regulatory landscape works and following that process with a fair bit of detail,” Wadhwa says.

Failing to register intercompany agreements or follow local procedures early can make it difficult to settle payments later. In markets where financial tools are limited and regulations can be complex, treasury discipline often begins with the contracting itself.