Published: September 24, 2012
PacNet Services Ltd (PacNet) has a very specific business objective: to facilitate small payments between businesses and consumers efficiently and consistently across the world. Africa is a key part of this strategy. Currently, we operate in 20% of African countries, which amounts to around 90% of our potential market, with particular strength in the Common Monetary Area in southern Africa (Lesotho, Namibia, South Africa and Swaziland). We also have regional representation in Egypt (North Africa), Kenya (East Africa), Morocco (Middle East & North Africa) and relationships in Gabon and Benin to support French-speaking Central and Western Africa.
Our regional approach to Africa demonstrates one of the most important issues for corporations considering opening or expanding their business on the continent. Africa comprises 54 countries, each of which has its own tax, fiscal and economic environment and unique cultural heritage. Consequently, foreign multinationals need to plan their strategy and operating practices for each individual market.
Our group treasury function is based in Vancouver, Canada, with a supporting operation in Shannon, Ireland. We have two key treasury principles that shape the way we manage our cash, treasury and risk management activities: SWIFT access and currency convertibility.
Cash management is impossible without accurate and timely access to data. To enable this, we use SWIFT to connect to our banks through Barclays’ MA-CUG (member-administered closed user group), which is one element of a long-standing and highly successful relationship. In emerging regions such as Africa, this is more problematic than in Europe or North America that have a more established financial infrastructure. Consequently, support for SWIFT is a major factor in our choice of banks when we extend our business into a new country. Banks will often claim that their proprietary technology provides equivalent capabilities to SWIFT, which may be valid in a single-banked environment, but not for a complex organisation like PacNet that needs to work with more than 500 banks globally.
Our second priority is currency convertibility. If a currency is not freely convertible, we avoid the need for conversion wherever possible and hold cash locally until it is required. We suggest to clients that they hold cash in-country until it is required, as opposed to converting to base currency and then re-converting. This reduces their costs.
We also avoid repatriating funds wherever possible. We use cash locally where it is possible do to so, and set off amounts across customers to reduce local cash balances and avoid the need for cross-border settlement. In cases where we do need to transfer cash, we either automate the transfer through SWIFT according to predefined rules, or actively manage it in treasury.
Fundamentally, the ability to manage cash and risk effectively is a key consideration when deciding to expand the business into a new country. If we are not able to achieve these objectives efficiently, then it is unlikely that we will pursue an expansion strategy.[[[PAGE]]]
Doing business in some parts of Africa inevitably brings some challenges that differ from those experienced in other regions. Based on our experiences, there are three key issues I would identify:
Although cultures differ across Africa, a common theme is often a lack of urgency compared with Europe and North America. Even in countries such as South Africa and Nigeria, it is sometimes of little concern to bank personnel if connectivity is unavailable for a period of time, and delivery times are rarely checked. This can be frustrating for a company used to stringent deadlines and key performance metrics. The way of doing business, service level agreements with clients and internal expectations may need to be adjusted accordingly.
If you employ or send people to Africa, you need to provide appropriate security to them. Personal safety and protection of valuable items such as cash and passports are essential priorities. Ensuring security of cash flow and financial assets must also be considered, which is more difficult in parts of Africa where systemic integrity has not been a priority in the past.
The only thing that African countries have in common is the continent in which they are located, and the cultural, political and fiscal diversity can be substantial. There are some initiatives to create more cohesive regional alliances to permit cross-border trade, such as the Common Monetary Area, but it is unrealistic to expect that experiences gained in one country can simply be transplanted to another with any expectation of a good fit.
Many people expect technology to be a barrier when doing business in Africa. In fact, this is not necessarily the case. For example, the real-time gross settlement (RTGS) system in Nigeria is extremely efficient. As the financial infrastructure has been developed more recently than in more established markets, there are fewer legacy issues to contend with. There is often the need to define very high security standards compared with countries where a higher level of trust exists.
Pursuing a successful business strategy requires more than simply local knowledge and technology. In Africa, we typically need to work with local banks, implementing SWIFT connectivity at an early stage. It is vital to gain an introduction to the bank’s senior executives, as branch level and even regional level personnel often struggle with international propositions. This may take time, but the importance of contacts at the right level within the bank is essential to a successful relationship.
Working in Africa brings unique challenges and rewards, but without direct, personal experience gained from spending time in the relevant country, it is impossible to understand the culture, environment and people. This will put you in a better position to appreciate and manage issues that may not have occurred to you when working elsewhere. For example, in many developing countries, not only in Africa, you should be cautious about where you place your trust. People may withhold information for a variety of reasons, without negative intent, which requires cultural sensitivity to understand and address.
It would be wrong to assume that your global banking partner can provide all your local needs in countries in Africa, although the right bank will work closely with you to ensure that you continue to receive banking services in as integrated way as possible. Working with a local bank, alongside a trusted global partner, can bring unexpected benefits, not least in-depth local expertise and contacts. To leverage these advantages successfully, you need introductions to senior executives within the bank. While these may take some months to arrange, the right people can help accelerate the business by several years.
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