Unlocking treasury and cash management potential in Africa: opportunities and challenges
In the current environment, with supply shortages and inflationary pressures, money controls, the task of maintaining liquidity in Africa is challenging.
Africa has long been regarded as a continent with significant growth potential. As businesses continue to invest and expand their operations in the region, effective treasury and cash management has become increasingly important. At EuroFinance’s 11th annual Effective Finance & Treasury in Africa event, treasurers from the telecommunications giant, Airtel Africa and the London based cigarette and tobacco manufacturer, British American Tobacco (BAT) shared their experiences and strategies for navigating these difficult times.
Falling into a trap
Trapped cash in Africa, as experienced by global corporations, represents a substantial challenge in the efficient allocation and utilisation of financial resources across their operations within the continent.
Hindered by complex regulatory environments, currency controls, and infrastructural limitations, corporates often face difficulties in repatriating funds or reinvesting profits in a timely and cost-effective manner. This issue not only impacts their financial performance and agility, but also stifles potential investments and the broader economic development in the region.
British American Tobacco (BAT), one of the world’s largest tobacco companies, has a significant presence in Africa. The company operates in various countries across the continent, including South Africa, Nigeria, Kenya, and Zimbabwe, among others.
BAT’s African operations contribute to a substantial portion of the company’s global revenues and its growth strategy. While the company doesn’t completely bifurcate revenue contribution from the African continent but its Americas and Sub-Saharan Africa (AMSSA) segment contributed 15.2% to the company as of December 2022. The AMSSA segment includes North and South America, the Caribbean, and Sub-Saharan Africa.
“We have a lot of trapped cash markets in Africa. We will be looking at having another push to disrupt cash markets that are markets where we are able to repatriate.” Natalia Martynova, head of treasury for Americas and Sub-Saharan Africa at BAT shared. Adding that BAT is focusing on cash management, repatriation, and increasing the yield on trapped cash.
To mitigate the challenges of trapped cash, treasurers are exploring alternative ways to invest and generate returns and Martynova shared a recent example: “We have been creative in some markets, we have looked at buying provinces, so you have to be open to all kinds of solutions.” Demonstrating a need for businesses to think outside the box and be open to unconventional investments that can provide returns while satisfying their risk management profiles.
Meanwhile, Airtel Africa, a leading telecommunications provider operating across several African countries, has its own set of challenges with trapped cash in the region. Local currency issues also present a challenge, particularly when making supplier payments.
Sidhanth Hota, assistant treasurer at Airtel Africa shared his company’s approach to managing local currency risks of partnering closely with suppliers and offering incentives, businesses can encourage them to accept local currency payments in some cases and share the risks associated with operating in a particular country.
Another key challenge faced by businesses in Africa is the management of liquidity buffers in markets with trapped cash. Treasurers discussed various strategies to address this issue, including investing in local currency assets and exploring alternative payment methods.
Investing in Africa: Staying the Course or Pulling Out?
Despite the challenges, treasurers remained committed to investing and growing in Africa. They acknowledged that the continent offers unique growth opportunities, and the potential rewards far outweigh the risks.
Natalia Martynova shared BAT’s strategy of rationalising markets, saying, “We had done a review for our African countries in terms of profitability and potential. We’re actually doing some rationalisation for the market, which have very low profitability, and where it basically doesn’t make sense to stay.” This approach allows BAT to focus its resources on markets that offer greater potential for growth and profitability.
Sidhanth Hota emphasised the strong growth potential in Africa, particularly for the telecom industry: “If you look at Africa, one of the youngest population in the world has 47% unique penetration, and we’ve been growing our EBITDA in the 18-20% region in the last three years, while mobile money is growing at 30-35% year on year.”
With a young population and a rapidly expanding mobile money market, Africa presents a unique opportunity for businesses in the telecom sector and beyond. Hota added that Airtel Africa plans to continue investing in the region, reshaping its strategies as needed to address risks and capitalise on growth opportunities.
Treasurers also discussed the role of digital transformation in the future of treasury and cash management in Africa. As more businesses adopt digital technologies, the need for innovative solutions to manage cash and liquidity becomes increasingly important.
One area of digital transformation is the use of data and analytics to optimise cash management processes. By leveraging data, businesses can gain valuable insights into their cash flows and liquidity positions, enabling them to make more informed decisions about investing and managing their resources.
Treasurers also touched on the importance of collaboration and partnerships in driving digital transformation in treasury and cash management. Working together with local governments, financial institutions, and technology providers can help businesses overcome the challenges they face in managing cash and liquidity in Africa.
By adopting innovative solutions, thinking creatively, and working closely with partners and stakeholders, businesses can overcome these challenges and unlock the potential of Africa as a growth market. As digital transformation continues to reshape the landscape of treasury and cash management, businesses that adapt and embrace these changes will be well-positioned to thrive in the African market.
The world’s largest and most influential treasury event will return this September in Barcelona. Join more than 2000 senior-level professionals representing over from more than 50 countries to exchange experiences, learn best practices and meet best-in-class financial and technological partners. This year we will explore the theme “Navigating a new world,” empowering treasurers to manage today’s new and complex challenges and optimise treasury for the new economic cycle. Find out more.