We are running out of ways to say this but if you have been considering an investment in Africa and the Middle East equity markets, we strongly advise you not to keep putting it off much longer because momentum is clearly building up in these markets!
The African and Middle Eastern markets continue on their upward path this year. We are seeing an increasing build up of foreign investment into the stock markets across the region. An increase of volume also indicates that there is new money being put to work. If you have a look at the chart, so far this year most of the markets on which we focus have outperformed both the MSCI World and even the MSCI Emerging Markets indexes. This is now prompting more and more foreign investors to allocate to these markets.
In this week’s update, Youssef Lahlou, responsible for Maghreb Equities at Silk Invest, provides us with a focus on one of today’s great regional expansion trends in Africa. The conquest of Western African Banking by the Moroccan financial institutions. In our experience, this is a story that many foreign investors seem to be unaware of. Youssef is based at Silk Invest’s Casablanca office and has been following this development very closely. Our African Lions and Arab Falcons funds have been positioned to benefit from this expansionary drive. As always, we are telling you this story from a local perspective.
Two Atlas Lions seeking dominance in Africa
What was once seen as a risky, chaotic and forgotten about part of the world with limited prospects for the future, Sub-Saharan Africa is now regarded as one of the world’s fastest growing emerging markets which is increasingly attracting investors as a destination for investment.
It is now obvious that African economies are expanding at a rapid pace; not only on the back of higher commodity prices, but even more so thanks to steadily increasing consumer affluence which is creating growing long term demand for all economic sectors.
Today we take a close look at the financial services industry in Morocco and its drive to expand across western Africa. First, let’s take a look at the African financial sector’s big picture.
The financial services is one of the fastest growing sectors and a cornerstone of any modern and functional economy. It comes as no surprise that it is one of the sectors that is seeing the most interest by investors and that it has a dominant position in the capitalization of the various African stock markets.
The banking penetration of Sub-Saharan countries (excluding South Africa) is still very low in comparison to other emerging markets, indicating the potential for growth as incomes increase in the wake of strong economic expansion. The reality today is that, in general, banks in Africa are not yet playing their full role. They are still mainly operating as a place for people to keep their money safe while their lending activities are still at very low levels.
This obviously provides for healthy balance sheets, a welcome attribute in this stage of development as it will provide foreign investors with the confidence they need to invest in these banks.
There are trends in place that act as catalysts for change in the financial services sector: M&A activity in the region has been on an upward trend for the past few years and local banks are increasingly involved in both regional and international transactions which forces them to raise the level of their game. More and more bankers with experience acquired in more developed markets are coming back home to benefit from the growth. There are many more reasons which indicate that this industry can only grow from here and both regional and international banking groups are putting together strategies to tap into this demand.
Moroccan banks have been among the first to perceive and capture the enormous potential of greater Africa’s banking sector.
Attijariwafa bank and Banque Centrale Populaire (BCP), two companies in which we are invested in both of our funds, have been relentlessly executing their expansion strategies across the continent. As can be seen on the chart, both institutions are amongst the top 10 biggest banks in Africa.
Attijariwafa Bank, the Morocco’s largest bank, was established as result of a merger between Banque Commerciale du Maroc and Wafabank in 2003. The Group’s regional development became a reality in 2005 with the building of a strategic presence in North Africa by acquiring a 53.54% holding in Banque du Sud in Tunisia. After restructuring what was once a state owned bank and changing its denomination to Attijari bank Tunisia. In doing so, Attijariwafa bank engineered a metamorphosis, turning it into one of the premier banks in Tunisia.
The expansion went on. Attijariwafa Bank made a powerful entry into Senegal, it merged Attijari Senegal and the CBAO – the new entity constituted the country’s largest bank (with more than 29% market share and 49 branches). The bank also created a presence in Mali with the takeover of BIM, formerly owned by the government, BIM is the second-largest bank in the country (15% market share and 55 branches).
Last year, Attijariwafa Bank took over five units of France’s Credit Agricole in Sub Sahara Africa for a dismal 250 million Euros, reinforcing its position as a dominant force in the region. The transactions involved the acquisition of stakes in Senegal (95% of Credit du Senegal), Congo, (81% of Credit du Congo), The Ivory Coast (51% of Societe Ivoirienne des Banques), Gabon, (59% of Union Gabonaise des Banques ), and Cameroon (65% of Societe Camerounaise des Banques).
As recently as last month, Attijariwafa Bank and Banque Centrale Populaire agreed to jointly acquire a 60% stake in BNP Paribas Mauritania from BNP Paribas. Banque Centrale Populaire and Attijariwafa Bank are set to acquire a 19.8% and 40.2% stake in BNP Paribas Mauritania respectively. In 2009, BNP Paribas Mauritania had revenues of €1.8 billion.
Banque Centrale Populaire has also been assertive in terms of its territorial ambitions. They are already present in Guinea and Central Africa through majority stakes in local market leaders and have initiated talks with their French counterpart, La Banque Populaire group, in order to acquire 52.47% stake in Banque internationale du Cameroun pour l’épargne et le crédit (BICEC), the market leader in Cameroon.
No matter how you wish to look at it, these transactions make much sense. Both groups are entering places with a familiar ‘landscape’ i.e. populous countries with low banking penetration and with a financial industry in the earliest stages of development. The Moroccans are not new to this game, not too long ago, this same generation of bankers have been through the same stages of development back home.
The fact that these banks seem to know what they are doing stands out in the numbers. As far as both groups FY09 financial performances are concerned, they have both posted outstanding results. In 2009, the Attijariwafa Bank group saw its consolidated net banking income go up 20.9% to 1.19 Billion Euros and its net earnings group share improved by 26.4% to 351.8 million Euros.
BCP also reported an impressive 52% rise of its consolidated net banking income driving up its consolidated net income by 32%!
Our weekly updates that provide more perspective and insight into the African and Middle Eastern markets and economies can be found on our website www.silkinvest.com under ‘Products Update’ in the Products section.
We have a local presence in these markets which allows us to provide investors with a better understanding of what is really going on in this high growth environment.
We look forward to keeping you updated
Kind regards from the Silk Invest team
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