Out of Africa


On both sides of the balance sheet, treasurers describe Africa’s myriad regulatory frameworks and currencies as a headache. Keeping things offshore can often – but not always – be the best solution.

by Graham Buck

Published: 19 March 2019

With several of the world’s fastest-growing economies and a young, rapidly urbanising population, sub-Saharan Africa is a prime investment opportunity. But companies doing business there have learned to keep much cash and liquidity offshore, while keeping revenues – and funding – in hard currency.

Melissa Howe, Senior Banking Specialist, Booking.com

Two businesses reaping Africa’s growth dividend are travel website Booking.com and Helios Towers, a telecom tower infrastructure and satellite specialist supporting mobile operators. Netherlands-based Booking.com has seen business volumes grow rapidly in recent years, says senior banking specialist Melissa Howe while Helios focuses on high-growth markets such as Ghana and the Democratic Republic of Congo (DRC), recently extending to South Africa

US multinational engineering group Cummins Inc, also active in Africa, operates in a total of 54 countries. As Alouis Ngoshi, the group’s EMEA regional treasury director, corporate treasury notes, this means “54 central banks and sets of regulations – so our team on the ground needs regular information”. Like others operating in Africa, Cummins’ biggest problem has been trapped cash, along with softer commodity prices.

Local operations include Zimbabwe, a “particularly difficult” location where hyperinflation and currency fluctuation have posed accounting challenges. More recently, government efforts to sell oil at market prices rather than at a loss triggered the introduction of new local currency – the RTGS dollar – as legal tender in addition to the multi-currency, fuelling further unrest and market confusion.

Alouis Ngoshi, EMEA Regional Treasury Director, Corporate Treasury, Cummins

However, the group’s local treasury team is based in South Africa, which accounts for about half of Cummins’ total business across the continent. “We’ve looked at developing Mauritius as a centre for releasing trapped cash,” Ngoshi adds.

“Our choice for a treasury centre is ultimately driven more by the need to be close to business operations than pursuit of tax advantages and avoiding trapped cash.”

Market drivers

Unlike Cummins, Helios is a purely African venture, but operates via a hub-and-spoke structure with a London-based group and local operating companies.

“If a capex order requires a big capital payment, we can make it swiftly thanks to our centralised structure,” says Manjit Dhillon, head of corporate finance.

“Short-term liquidity requirements when a big capex order comes in can be a challenge. We have international suppliers who invoice in USD, so we need to ensure funding is available not only at group but at the opcos for such payments as well as maintaining a short-term buffer for working capital.”

When Dhillon joined in 2016, Helios had 14 different tranches of debt going directly to the operating companies in a combination of USD and Ghanaian, Tanzanian and Congolese local currencies. To simplify the structure a $600m USD bond launched in 2017 that refinanced all existing debt and provided additional capital for expansion.

Manjit Dhillon, Head of Corporate Finance, Helios Towers

“This meant we had to change the funding structure to shareholder loans from the group down into the operating companies,” says Dhillon. “Initially there is a challenge of the perception of the group providing the funding and that the requirement for local debt payments, whether interest or repayments, are now gone. It is important to ensure that local finance teams remember that while local debt has been refinanced, there is still the requirement to service the new debt.

“The monthly upstreaming isn’t optional, it’s mandatory. To date we’ve upstreamed over $90 million. The ability to source and transfer USD is important. Our markets are slightly different to others like Nigeria, where often you must queue at the central bank for dollars. In our markets you simply contact your bank and ask to transfer local currency into USD and just do a wire transfer to our banks in Mauritius and Isle of Man.

“We look to manage liquidity by keeping most of our cash surplus offshore in those locations. That not only facilitates repayment of the coupon, but also when required we can inject liquidity into our operating companies so they can manage working capital and ad-hoc large capex payments. Every week we work with the local opco finance directors to update the rolling 13-week cash forecasts. Transferring cash into the operating companies can be time-consuming, so understanding the potential liquidity requirements early is essential.”

The company also looks to keep contracts dollarised or in hard currency where possible. “The DRC is a dollarised economy, Congo Brazzaville uses the Central African Franc pegged to the euro, and in Tanzania/Ghana we look to have portions of the contracts in USD where it is possible and sustainable,” says Dhillon. “For 2018, 65% of EBIDTA was in hard currency, providing a natural hedge for our business.”

Helios is now well-positioned for future expansion in South Africa, where there are 30,000 mobile towers. “Most of these are in the hands of local mobile operators. Some may be ready to sell their portfolios in future – so we need to be nimble to take advantage of opportunities that arise.”

Location and centralisation

Africa’s booming mobile market also benefits Booking.com. In Kenya, for example, it uses mobile phone-based money transfer service MPesa. “Almost 70% of our collections are done by mobile and we’re also seeing rapid take-up in Uganda,” said Howe, although South Africa’s uptake of mobile payments is relatively subdued.

E-commerce is also steadily gaining traction as both new payment service providers (PSPs) and payment services enter the market, particularly in west and east Africa.

However, while Booking.com pays much attention to keeping payment methods attractive and staying competitive against local operators, it hasn’t established African regional centres. “We recognise the benefits but based on our model we will remain centralised in the Netherlands,” says Howe.