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“Indigenous banks have the unique opportunity to tap SME markets,” TunisInvest CEO, Zied Oueslati
Africa’s private sector has struggled to access financing its needs for sustained growth. In part, the combination of risk management and long term savings, as well as capital flights, contributes to the obstacle. TunisInvest CEO, Zied Oueslati conferred with us on this critical issue, at the sidelines of the AfDB’s board retreat on February 21 in Tunis. Excerpts.
Question: Africa is seen as a continent of opportunity. To what extents is the banking sector ready to support private sector development for Africa’s transformation?
The banking sector in Africa has improved considerably in the last decade, which is enabling it to support private sector development. Nonetheless, there is more work to do.
To date, the European banks that have operated in Africa have not sufficiently understood the needs of the private sector, and many local banks have been focused on bringing in deposits and then investing them in the local bond markets, thereby crowding out the private sector.
The biggest opportunities for the African banking sector are in SME financing, particularly to address a "missing middle" which is due to SMEs’ challenges accessing risk capital versus both large corporations and small micro-enterprises.
There are also opportunities for African banks to support private sector development through supporting technology that is helping Africa to switch payment systems from paper to electronic, as a way of conforming to emerging global market trends.
The banking system in several countries will also need to address new challenges in fraud prevention and focus on the importance of a multi-channel strategy and creating customer-centric payment methods. In addition, today banks finance large established corporations and companies and microfinance institutions finance persons and microenterprises. Banks should play an important role to grow SMEs in Africa by financing their investment and thus enable them to create value. There should be a transformation from consumption financing to investment financing. Banks can through that process enable very small but also small and medium enterprises to become transparent and bring a large number of them to the formal sector.
Question: Why is it that with all the cash available in our countries, banks do not put in much in financing the private sector? It also appears there is dearth in risk management. What is the situation all about?
Interest rates for SMEs are high and maturities inadequate. In the most challenging markets, local currency interest rates range from 24 to 30% and maturities do not exceed three to five years.
This is partly because banks are not equipped with the ability or tools to discern and quantify risk properly. Commercial banks are inadequately equipped to assess the underlying risk of SMEs. The lack of long-term savings as a source of funding contributes to the obstacle.
In addition, I believe that indigenous banks should be helped to better address the needs of SMEs. While banks affiliated with large international groups are bound by global internal rules, and the decision making is no local and impacted by factors that are exogenous to Africa, indigenous banks have a unique opportunity to tap the SME market. We should not forget that there will be no sustainable growth in Africa if SMEs are not part of it. SMEs employ, create value and contribute to the local communities.
Question: For there to be smooth private sector development in Africa, some experts underscore the need to consider savings and to mobilize as much domestic savings as possible. On the other hand, we know that Africans find it difficult to save. How do you think we should fill the gap in financing the private sector?
Boosting domestic savings remains an important challenge for African countries. Eighty percent of the continent's population is not banked. Indeed, the continent is estimated to be losing a great deal in domestic revenues annually through capital flight, tax evasion, the repatriation of profits by transnational corporations and high debt repayments. At the same time, the continent’s large informal sector holds considerable financial resources that are not deposited in savings accounts or pass through other formal financial channels. Channelling the remittances of Africans based outside of Africa through the formal banking sector will also provide the sector with better means to support and finance SMEs.
Changing the local mindset will require some track record of banking sector performing well and remaining healthy. This will take time, but many countries are facing the challenge more seriously than they have in years past.
Question: What is the Africa you would want to see in 50 years’ time?
A vibrant Africa that stands out in terms of growth and sustainable development. This growth should profit all the classes and not only the rich. I would like to see an economically more homogeneous Africa and a fully open market. Politicians will have to tackle a lot of challenges, like the informal economy, which I see as the major hurdle for growth. Access to free education should also be available for all, as well as health.