Africa's treasury landscape continues to evolve. Every corporate treasury office that is established in Africa must face challenges and these will determine how they can benefit from the enormous business potential of the region.
Corporate treasurers in Africa have always faced challenges because of the multitude of regulations, rules and payment systems that are in place within and between its diverse markets.
It is helpful to think of Africa as three distinct treasury landscapes. This can be a useful guideline for businesses. Many countries, including Botswana, Kenya, Mauritius and Zambia, have very few or no foreign exchange (FX) regulations.
A second group of countries, such as Malawi and Tanzania, have a small amount of regulation in order to manage liquidity and FX more closely. A third group of countries, such as Nigeria, Chad and Angola, have very specific rules and regulations for accessing foreign currency liquidity. These rules are meant to manage liquidity and allow access to foreign currencies in the local currency market. However, they can cause delays in the treasury function as well as paperwork and increase the risk for cash being trapped.
Corporate treasurers must be able to comprehend the differences and complexities within the different environments they are entering when setting up operations in Africa or moving from an existing African operating environment to a new territory. The market's treasury system can make a difference in how much or little cash you have.
In many markets, investors must show regulators how much capital they bring to a country before they can establish operations. This will help businesses to both allow investment and provide operational incentives. It also helps businesses to decide when to invest abroad. This could trap cash in the market if the process is not followed correctly from the beginning. This level of detail can lead to huge logistical and supply chain problems once operations begin.
To avoid potential pitfalls after setting up, it is important for the treasury and its relationship banks to meet them before setting up. Treasurers must engage banks to make sure they are aware of all the risks and potential problems. They also need to establish relationships with regulators and investment agencies. This helps the bank and company grow and have a great working relationship.
There are many advantages to setting up regional treasury centres in Africa for companies that have operations in multiple African markets. This allows them to consolidate proceeds and cash positions from several operations. Businesses can use their working capital more efficiently by setting up a regional treasury. Excess US dollars (USD), for example, could be used to finance a business in Zambia, where USD might be scarce.
Regional treasurers may be able to pool funds to make large or new investments, depending on the local market legislation. This reduces the amount of debt that companies on the continent have to raise. Businesses can also pool funds to save money on currency conversions or physical transfers of USD between countries.
Converting and transferring cash in Africa is likely to be a necessity after all the physical work is done. Centralised treasuries can help reduce the cost of these transfers by providing a consolidated view across multiple jurisdictions of liquidity availability. A consolidated electronic view of multiple liquidity positions saves time, money, and inefficiency.
Sydney Wechuli is head of treasury for payments fintech Spektra Inc in Kenya and chairs the Association of Corporate Treasurers’ East Africa Advisory Panel