How global volatility and international family businesses are shaping private and investment banking in Africa?
Africa presents a compelling – albeit complex – investment landscape. While challenges such as political instability, currency volatility and limited liquidity persist, they are counterbalanced by significant opportunities.
These growth options are driven by powerful demographic shifts, digital transformation and burgeoning intra-continental trade, catalysed by initiatives like the African Continental Free Trade Area (AfCFTA).
As the Boston Consulting Group (BCG) highlights, growth in private capital deals on the continent has significantly outpaced global averages, yet assets under management remain underpenetrated compared to global benchmarks, signalling substantial room for growth.
Africa's dynamic investment landscape requires strategic insight and sophisticated support. Despite varied historical private equity returns, targeted strategies have yielded substantial rewards, with nearly a quarter of Africa-focused funds achieving net internal rates of return exceeding 15% over the past decade.
This illustrates the significant opportunities for private and investment banking on the continent, driven by three key trends: renewed global appetite for African investment, evolving needs of multi-generational family businesses, and the increasingly global nature of these families and their enterprises.
A growing appetite for African investment amid global volatility
The investment banking sector has seen a resurgence of interest in Africa from global investors. As Amol Prabhu, Country chief executive officer: South Africa & Market Head for Barclays, observes, this shift is partly driven by a re-evaluation of risk in markets previously considered safe.
Some investors, he suggests, now perceive traditionally 'safer' regions as presenting new challenges due to US trade protectionism and its impact on markets. These factors drive investors to look elsewhere for diversification because 'taking on a bit more risk makes sense if the potential for higher returns is strong,' Prabhu adds.
This appetite manifests in two ways:
Navigating nuance and risk: Investors know that opportunities and risks vary significantly across Africa's 54 nations. Those willing to embrace calculated risks for potentially higher returns require partners who understand the specific market nuances. As Prabhu emphasises, focusing on specific regions, like South Africa, Kenya, Nigeria, and Ghana, allows for deeper market insights and, thus, greater ability to mitigate risk.
Identifying emerging opportunities: Beyond risk mitigation, investors want to know where the opportunities for growth lie. Prabhu says, 'Investors want greater insights into what is happening on the ground. They're asking which sectors hold the greatest opportunities, and they want a partner who gets the local landscape.'
The continent's young demographics underpin substantial consumer market potential in areas like financial and digital services. Additionally, Africa holds vast reserves crucial for global decarbonisation, which will future-proof its commodity markets. Prabhu adds, 'You must remain informed and agile enough to capitalise on these opportunities – a process that is much easier when you have the right partner to guide your exposure to different markets.'
Supporting the evolution of multi-generational family businesses
Multi-generational family businesses remain a cornerstone of wealth creation across Africa, and private banking is adapting to better serve their needs. Prabhu highlights the common dynamic where 'founders or original wealth creators tend to be very entrepreneurial in their mindset, having built a successful enterprise from an idea decades ago.
Their families are now highly educated, completing globally competitive degrees anywhere from Lagos and Accra to Johannesburg or London, and they are now taking over the family business.'
The key trend now involves the transition within these families. As Prabhu explains, subsequent generations have expanded skill sets and are professionalising the businesses, moving them from family-run operations to formally managed enterprises. This wealth transfer requires tailored private banking support that understands both the family legacy and the business's future direction.
The globalisation of families and the need for integrated banking
Linked to the evolution of family businesses is their increasingly global footprint. Parents may be based in Nairobi, with one child running operations locally and another child working in Dubai or studying in the UK.
This geographical dispersion creates significant complexity, encompassing collective and individual wealth, as well as globalised business interests. The family business now has to navigate intricate tax, regulatory, and compliance requirements across multiple jurisdictions.
This challenge requires a shift towards integrated, multi-service banking where clients need a spectrum of services beyond private wealth management, potentially including corporate and investment banking, retail accounts, and credit facilities across different jurisdictions.
For customers, the value lies in simplifying this complexity. Prabhu highlights the importance of being equipped to serve clients' varied needs across products and locations.
'There should be a single primary advisor who is a gateway to the bank's broader global offering. In some cases, this can extend to relationship-driven support, which goes beyond traditional banking, a reality that is increasingly essential for managing the intricate affairs of global families and their businesses.'
A pivotal moment to spotlight Africa's potential
While Africa presents exciting investment opportunities, it takes expertise and diligence to unlock its potential. The right banking partner will play a key role in guiding investors, supporting family businesses, and providing integrated solutions, making them essential partners in navigating Africa's financial landscape.
The G20 and B20 platforms, especially with South Africa's presidency, provide a unique opportunity to showcase Africa and encourage dialogue around investment opportunities. Collaboration between government and the private sector is essential to present Africa as an attractive investment destination.
For investors and families charting their course, partnering with financial institutions that offer deep regional insight within a global framework will be key to unlocking the continent's considerable promise.
All rights reserved. © 2022. Bizcommunity.com Provided by SyndiGate Media Inc. (Syndigate.info).
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