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Africa set for banking boom

March 4, 2011

AFRICA-PHONES/From March 7 to 10, political and business leaders from around Africa will be joining us for the inaugural Reuters Africa Investment Summit to discuss the opportunities and challenges facing investors in Africa.

One of the key areas of interest will be financial services and ahead of the summit, consultancy Bain & Company released a study indicating that the $107 billion industry could grow by an impressive 15 percent a year until 2020.

The biggest growth area is seen as being retail banking – set to account for nearly 40 percent of African banking revenue by 2020 – and mobile banking in particular is seen as being a powerful driving force after the success of the M-Pesa mobile money transfer service in Kenya and others elsewhere.

Banks may be rubbing their hands at such growth opportunities.

But retail banking is not a high margin business. It is one where you have to earn a little from lots of customers, know them well and serve them well – not easy when you have many millions spread over a large area who may not be worth much individually even if they are better off than they have ever been before.

“To be able to compete in Africa you need people on the ground who know the terrain,” said Sim Tshabalala, deputy CEO of Standard Bank in an interview with Reuters on Thursday.

Africa’s largest bank by assets knows the continent as well as any of the bigger banks, but the difficulties of building a profitable business in Africa were highlighted by its own 2010 full year results this week.

Although its revenues from banking operations in Africa outside South Africa grew by 2 percent, its headline earnings from the rest of the continent were 38 percent lower than in 2009 as it pumped in more investment.

The drop was partly to do with the fact that a strong rand meant profits earned in currencies more closely tied to the dollar brought in less in rand terms, but it certainly highlighted the fact that banking in Africa can be hard work and doesn’t automatically bring quick returns.

The same certainly goes for other businesses on the continent as local and foreign businesses seek to tap the growing wealth of a billion people and an expanding middle class.

These and other issues will be discussed at the Reuters summit. What questions would you like to put to the leaders we will be speaking to?

Picture: A man leaves an M-PESA booth after a money transaction in Nairobi. REUTERS/Noor Khamis

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