It already has a middle class that is almost as big as the entire populations of Russia and Brazil, and with 70% of its population under 35, Africa will enjoy an extraordinary demographic dividend as its youthful energy drives economic growth and development.
Eight African countries are rated highly enough to appear ahead of the BRICs in the World Bank survey on Ease of Doing Business and other surveys predict how Africa will surpass Latin America in 2013 as the region with the highest salary increase.
Traditionally, however, the perceived and real risks of many of the countries where corruption, lack of regulation, economic instability or, worse still, war-torn political strife has turned off those with even the slightest compliance type mindset.
Attitude to risk has to date been a powerful sifter of the key players in the financial services world and their presence, or not, in particular countries.
Areas of risk
South Africa stands out as the lowest risk entry point, with its sophisticated developed world take on financial services. Not only does it have a notably efficient tax office to rival the best in the rest of the world, the infrastructure also includes a choice of fund platforms and a range of well-known providers such as Old Mutual, Sanlam and Royal London.
East Africa does not have the same level of world infrastructure, but reassuring ex-colonial links have put countries such as Kenya, Zimbabwe, Botswana, Tanzania and Zambia on the map as places to do business.
Zimbabwe, of course, is a case in point of the risk issues, given the way the dictatorship there means as one local observer put “that it can go off at any minute” and the local currency has been binned in favour of the US dollar giving rise to exchange control problems.
As far as Western Africa is concerned, this is generally where the risk averse providers and financial advisers shy away from. However, observers say countries such as Ghana and Nigeria, which was a very corrupt country but is less so now, are getting more attention.
In North Africa, joint ventures such as Legal & General’s in Egypt are noteworthy, and while the popular holiday destination of Morocco, one of a string of countries adjoining the Mediterranean sounds reassuringly familiar, near neighbour Libya is an example where political issues and the Arab Spring are not helping business confidence.
Open for business
In contrast to the risk profile of the mainstream financial services sector, DeVere is one of the big-gest independent financial adviser groups in Africa having already established offices in Botswana, Ghana, Mauritius, Mozambique (two offices), South Africa (seven offices), Uganda, Zambia and Zimbabwe.
Chairman Nigel Green says Africa is an integral part of the deVere Group’s corporate growth strategy: “We’re looking to open another 10 offices across the continent within five years, as well as expand our existing operations.”
Green highlights the “significant surge in disposable incomes” in many parts of Africa in recent years, a trend he fully expects to continue as the continent’s economic growth and global influence increases.
However, this strategy by its nature is not always plain sailing as deVere’s joint venture in Kenya demonstrates.
Less than a year after establishing a branch in Nairobi through a joint venture with Executive & Corporate Advisory Services, led by area manager Gavin Cooper, the working relationship has come to an end.
A deVere spokesman said: “DeVere was working with another company, but we decided to apply for our own licence. DeVere will do business in Kenya again.”
Changing fortunes
A long-established financial adviser in Kenya is Thomas Wright, owner and MD of VFS International, which is licenced in Mauritius and has 40 advisers with clients across most of central Africa.
He lives in Nairobi among the community of old money Brits who stayed on in Kenya, running farms and other activities. These are his key clients who now sit alongside a huge number of short-term expats working for such organisations as the United Nations.
Wright has witnessed first hand the rise of the indigenous middle class, who are highly educated, comfortably off and are now doing the jobs that expats did in the past.
There are also the changing fortunes of countries, such as Mozambique, which used to be just a destination for a beach holiday and not much more, but has since become a lucrative focus for oil exploration.
Tullow Oil started drilling in Uganda and symbolically started to open up the country to outsiders, and the oil company is also in Kenya now, Wright says.
The big hunt for resources continues, but barriers to entry are evident elsewhere, such as Angola, which Wright says is “fearfully difficult to get into. You need a permit”, and “I know some companies won’t touch any money coming to the Congo.”
By contrast, Kenya has had a free flow of money for a long time, though Wright recalls how, as a holder of Kenyan passport, he was not able to go to South Africa until the onset of the Nelson Mandela era.
Regulatory regimes
Kenya also has a stronger regulatory regime for financial advisers than might be imagined, and after South Africa’s Financial Services Board, which oversees non-banking financial services, it can lay claim to having one of the more well-defined approaches in Africa.
Its Capital Markets Authority, which VFS International is registered with, requires Wright to submit accounts every quarter: “They take an interest if we are solvent and you have got to have certain levels of paid-up capital. Every year the list of requirements gets longer.”
Botswana, where VFS operates too, has a similar approach to Kenya with its regulator the Non-Bank Financial Institutions Regulatory Authority, he says.
However, he adds: “There are quite a few non-licenced advisers in Kenya and they exist with the grace of the insurance companies.”
Financial planning
As for financial planning, Wright says “in Africa there is a much greater need for cover in the event of acci¬dent than for a heart attack” and he highlights the poor state of the roads as one of the key factors.
One life company keen to become part of the Africa story is Cayman Islands-registered Investors Trust Assurance (ITA), whose managing director Bob Pain has researched the best way to gain a foothold.
“In terms of potential markets for our business, I find countries like Kenya, Nigeria, Ghana, Uganda, Zambia and Botswana very interesting.
“You have some expats doing business with regional offices in some of those countries, but the biggest organisations are managed by locals. Many are South Africans and Kenyans.“
He believes ITA has a tremendous opportunity in the continent.
“The big life companies invest more in Asia or Middle East, and Africa in some points is similar to Latin America, with poor support and no smart tools or resources to get more business from there.”
Opportunity knocks
Specialist Luxembourg-domiciled fund management firm VAM Funds global sales director Nigel Watson says the company identified Africa as a vast business opportunity many years ago. Business consists of third-party distribution through the advisory channel including a large number of well-established IFA firms servicing both domestic and expatriate clients from South Africa, Southern, East and West Africa.
He says there is a mix between long-term expatriates to middle/HNW nationals in a number of the African countries.
“I first visited East Africa in the late 1980s and have been a regular visitor over the past 25 years securing business through a large network of well-established IFA firms.
“Business today is much easier with offshore products now being well accepted together with a better regulatory environ¬ment and clearer rules relating to foreign exchange controls.
“Africa is a great place to do business, while very different to other markets such as Asia and the Middle East, not as many providers regularly visit the territory and there is always a ‘story’ from each visit.”
So a scramble for Africa appears to be gathering momentum, not just in terms of natural resources with new market opportu¬nities opening up with the growing middles classes having financial planning needs in much the same way as the typical Western client profile.
As Wright puts it: “The market is potentially massive, once you start to view it as the Kenyan population.”
And with the Chinese spreading across the conti¬nent, they could represent a new expat market for advice in the future.
