Viewpoint: The Ecobank success story

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We remain committed to a flexible strategy which utilises both organic and inorganic means of growth

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Nelson Mandela once said: "It always seems impossible until it is done." Today, Ecobank is recognised as a major financial institution across the continent but when the concept of a privately owned independent African institution was first mooted in the 1980s, the idea was considered almost crazy.

We had a clear vision and mission from inception. Our founders did not set out to create a carbon copy of other banks – they set out on a different track. They wanted something that was pan-African from the start, inclusive to customers and be able to make a difference. We have since refined the model – we now say we want to build a world-class pan-African bank with world-class operations and services, supported by strong corporate governance, strong compliance and strong ethics.

We are now present in 32 countries. Ecobank operates as one bank, with common branding, policies, processes and technologies across our entire network – risk management, finance, operations and IT functions have all been centralised. Ecobank today employs 20,000 people from 14 nationalities in more than 1,400 branches and offices across Africa, the Middle East and Europe.

Banking is a specialised and cyclical business; financial institutions need to be strong enough to withstand external shocks but flexible enough to capitalise on the upturn when it inevitably comes. If we were to create a pan-African banking force, we realised we had to adopt a diversified business model – transforming Ecobank from what was predominately a wholesale business to a more balanced portfolio of banking activities.

Having historically been constructed along geographic lines, in 2010 we also reorganised the group into three business units: a corporate banking unit to focus on multinationals, a retail business to focus on domestic consumers and local corporate, and an investment banking – which we branded as Ecobank Capital.

Looking forward, I think the greatest opportunities will lie in the mass retail segment. Less than 20% of the African population has access to formal banking facilities – which represents a huge opportunity. We are looking to empower Africans and want to contribute to the economic development of the countries in which we operate by providing wider access to finance. This will lead to more employment and, over time, a more developed economy.

Size matters in banking as fundamentally it is a commodities business. Critical mass is essential in Africa where operating costs are very high relative to customer volumes. We shifted our strategy to build scale in key markets as scale generates economies. It enables us to hand major transactions and establishes Ecobank as a systemic player in the markets in which we operate.

We remain committed to a flexible strategy which utilises both organic and inorganic means of growth, with the ultimate aim of being top three in each of our markets. We believe that this approach allows us to react to a market that continues to grow.

However, Africa's fortunes are tied closely to other parts of the world and the continent will not be immune to the Eurozone crisis for example. The banking sector must also confront fresh challenges such as new regulations, high up front funding and risk costs and the need to generate shareholder returns. Ultimately, those banks which can reshape their portfolios, build stronger regional networks and innovate successfully that will emerge as winners.

Viewpoint: Critical building blocks

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Nigeria is conducive to private investment

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Nigeria has shown remarkable economic growth, and for over a decade has been featured among the fastest growing economies in the world. It has critical mass with 167 million people, it is the 8th largest producer of crude oil in the world and has substantial gas reserves. However, a lot still needs to be done to enable the country to become one of the top twenty global economies by 2020.

A healthy and well functioning banking sector is one critical building block towards sustaining and accelerating growth in Nigeria. The banking sector is a major source of short to medium term funds, and has actively contributed to economic development in Nigeria. No business can succeed without access to adequate working capital and only the banking system can fill this gap. Our response to the impact of the global economic crisis in 2009 was therefore not only a test of our commitment more generally to creating an environment in Nigeria that is conducive to private investment, but more specifically, to ensure that the productive sector has access to this critical source of funding.

Nigeria was not hit by the first effects of the world financial crisis – it was more the secondary effects such as the crash in oil prices. When I took over as governor of Nigeria's central bank in 2009 we had huge macro-economic issues. A significant part of the banking system was on the point of collapse. We did a proper examination of the bank's books and we found out 10 that banks were short of capital. We stepped in, removed the management of those banks and discovered there was margin trading and also outright theft, with money having been taken out of the country with no intention of it ever being paid back.

So we had to set up an asset management corporation to recapitalise the banks and we recovered 200 pieces of real estate in Dubai, Johannesburg and four private jets. It's extremely easy to run a bad bank for a very long time – until there is an external shock. And the financial crisis brought out years and years of fraud that had been covered up in these institutions.

But it's important to put the Nigerian experience in context. First, fraud and corruption was not endemic; it was a tiny minority of Nigeria's banking community that was guilty. Furthermore, Nigerian bankers, as a whole, agreed to place 0.3% of their balance sheets into a special account to fund 66% of the banking bailout – unlike in many countries where the taxpayer bore the brunt of the financial cost.

We had a crisis, and we fixed it. We have done everything that the British and Americans are still talking about. We are one of the few if not the only country to hold the industry to account for what it did. We have held people responsible, we have broken up universal banking, we forced bank CEOs to leave office after 10 years, we have compelled them to adopt IFRS, embrace the Basel III Accord, and overall we have improved governance and risk management. No one can point the finger at the Nigerian banking industry – we have shown others how it can be done.

As we look forward though, the real challenge is lessening our dependence on government as the major driver of the economy. Until we move away from this and hand more of this activity to the private sector there will remain opportunities for corruption. Ultimately, like all countries, we need a civil society that holds politicians to account. That is when government knows it has to deliver.

Viewpoint: Mobilising savings for infrastructure

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Young Africans need to become more audacious

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Africa requires spending of more than US$90b a year on its infrastructure but this investment is not going to be funded from external sources alone. Our own governments on the continent have to find a way of mobilising our own savings so that we, as Africans, can make such investments

It is important to remember that Infrastructure around the world has been led by governments. For example, the electrification of the United States was the result of President Roosevelt deciding that the country needed to be 100% electrified. Africa will have to follow a similar route. We are not going to be able to rely heavily on the private sector to deliver our infrastructure programmes – not even the traditional institutions. We are going to have to look to ourselves to deliver this.

Most African countries have a government pension fund and these have significant resources, some of which are invested overseas. We're going to have to think carefully about our own savings and leverage those – rather than wait for capital to arrive from overseas. Africans need to take their fate into their own hands.

Our biggest risk is pessimism. We have a host of challenges but I remain confident. We will be able to build infrastructure but to do that young Africans need to become more audacious: audacity, audacity, audacity.

Viewpoint: Focussing on infrastructure

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Successful execution requires effective partnership

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There is no doubt that one of the greatest factors of underdevelopment and a constraint to doing business in Africa is weak infrastructure.

At DFID we select which infrastructure programs to focus on and support. We look at what can truly be transformational, and our focus is on regional infrastructure. There are opportunities as a lot of extractive industries are set in landlocked areas. However, successful execution requires effective partnerships. We work closely with national governments and the regional economic communities, who identify and ultimately own the projects. We also need to work more cleverly with the private sector to maximise effectiveness of projects. Doing feasibility and preparation work is important in this context.

However, better infrastructure is not the only factor to sustained future growth. There are a range of other issues such as lifting the regulatory burden which also need to be focused on.

Viewpoint: The relationship between government and business

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Working together to deliver a stronger economy will help bridge the differences that currently exist

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The government needs the private sector to thrive and pay taxes, whilst on the other hand, the private sector looks to government to provide the right investment environment. This means that the relationship between government and business is imperative. In particular, from a South African perspective, the key priority is to make it stronger because there is currently not enough trust between the two entities. It does not make sense for business to sit on the sidelines and wait for government to generate policies that get fed down to them. They are part of the system and need to be part and parcel of the formulation of those policies. What we also know is the ability of business to maximise profit depends on the right environment to be in place.

The fundamental basis for this discussion is understanding where the role of government starts and where it ends, defining those goods and services that need to be produced by the state, those that need to be produced by the private sector, and avoid any overlaps which are an unnecessary cost of capital and time to the economy.

Another critical factor is the level of human skills available to government and private sector. I have observed that the level of professionalism in both sectors has been compromised because, as professionals, once we find ourselves on one side of the divide, the tendency is to be narrow in our thinking. When in government, we tend to be preoccupied with government policy to the extent of ignoring the inherent needs of the privates, which allow it to achieve what it exists for, namely, making profits.

Whereas, in the private sector we worry only about profit maximisation, almost at all cost, to the detriment of the long term gains of the economy and with unfortunate disregard for policy. In the US and other economies, they have done very well with the application of the principle of revolving doors. Many people in the private sector, who have been very successful, yearn to go into government because they know that they can contribute to changing the environment in which they live.

In South Africa this principle does not yet exist. To most professionals, the two sectors are seen as vastly different worlds that have nothing in common. To the contrary, the two sectors should have complementing objectives, processes and characteristics.

The private sector perceives inefficiencies in the state, and government gets frustrated with what it perceives to be tendencies of the private sector to focus purely on the short term profit motive and not on the long term sustainable needs of the country's production process. These polar positions need to be brought together through genuine, open and frank engagement, particularly around the mutual priority of the country's delicate economy. Working together to deliver a stronger economy will help bridge the differences that currently exist

Emerging markets Vs. African country investments into Africa (2003-11)

Source: fDi Intelligence, data as of 3 February 2012; Ernst & young.

Infrastructure-related number of projects by value and sector — up to 2012

Sources: BMI, EIU, Nedbank, Web Search, Factiva Press Search, World Bank; EY Analysis.
"Construction" includes residential, commercial and industrial construction. "Other" includes Defence, Health, Education, Public Transport & Telecoms.Projects that are in the "completed" or "cancelled" stages are not included. Projects for which the value is unknown are not included.

External support to African infrastructure

Source: Infrastructure Consortium for Africa (ICA) Annual Report 2010.

External support to African infrastructure

How are you planning to invest?	What is the maximum equity share youwould be willing to sacrifice to your localpartner?
Source: Ernst & Young's 2012 Africa attractivenesssurvey. Total respondents: 191.	Source: Ernst & Young's 2012 Africa attractivenesssurvey. Total respondents: 45.