Author: Ben Debski

Funding Africa’s future: If they build it will they come?

Posted on by Ben Debski

The New Economy speaks with Tom Burgis author of The Looting Machine: Warlords, Oligarchs, Corporations, Smugglers, and the Theft of Africa’s Wealth to find out more about Africa’s future.

The New Economy: China is, of course, buying up a lot of Africa and it’s been slated for corrupt practices and so is this a step backwards for Africa?

Tom Burgis: China has come in, just at the moment when there were some tentative moves towards greater transparency in the oil and mining industries. Some of the Western companies have been stung by corruption scandals, although they’re getting their act together a little bit and China has come in, reintroduced opaque deals struck in smoky rooms and has captured vast amounts of resource flows – mortgaged – and, basically, allowed Angola and others – Gabon – to mortgage a lot of future oil and mineral production in exchange for soft loans under undisclosed terms.

There are, obviously, massive risks to that. Similarly though – and this is what came across in the discussions I’ve had with Chinese officials and investors in Africa – you could see this another way. You could see it, as are some of the Chinese officials, particularly, the Chinese Ambassador to Niger who I interviewed in the book. They make a pretty eloquent argument, which is that for decades of imperial rule and centuries of exploitation western countries have pillaged Africa and left very little behind. There’s the odd railway here and there, but, largely, it’s just some holes in the ground and the terrible legacy of slavery and commercial exploitation.

The Chinese have turned up and given a different offer which is, yeah sure, we want this stuff that’s in the ground; we want the oil; we want the copper, but we’re going to build serious roads and we’re going to be build you a refinery like – the one in Niger went, which Exxon and Total said were not commercially viable – we’re going to build hydroelectric dams; we’re going to build infrastructure on a scale that the old exploiters could never have conceived.

That is the message, encapsulated by the Chinese Ambassador in Niger who said, basically, the problem in Niger is that they’ve been exporting Uranium for many, many years, principally, to France which runs on African Uranium, pretty much, and Central Asian Uranium and the governments’ receipts from Uranium are slightly below the governments’ receipts from the export of onions and the Chinese proposition is…you’re getting fleeced; we’ll give you a different deal.

A lot of people have bought into that. Some people are wary. People, like, Lamido Sanusi, who is now the emir of Kano, Nigeria and who was, until recently, a very highly regarded Central Bank governor in Nigeria. His argument is, basically, that the deal with China replicates the old colonial bargain, which is…we will import a load of manufactured crap, which you will buy and we will export the raw materials we need for our own economic boom.

And the final thought on China – and this is the one that concerns me most, I think – is that the pitch from China is, basically, here are the nuts and bolts that replicate our economic miracle; here are the roads; here is the infrastructure you need to have this kind of industrialisation and growth. The difficulty with that is – that’s explained by a big China consultant, in a book, called Martin Davis and the idea is that if you build it they will come, right. The idea is, if we build up these roads, then factories will open; people will have more manufacturing; more mass employment and that is a route out of poverty for a lot of the African States we are talking about.

The difficult with that argument is, is that really the way it works? Isn’t it that you get people starting to manufacture things and, then, that creates the demand for the infrastructure and that creates the demand for infrastructure, because you know there’s somebody at the end of that road who wants to buy it. It seems a little bit like putting the cart before the horse, especially, when, at the same time, there’s building all the roads. The tiniest amount, certainly until recently, for natural resources and commodities pushing the prices for them up, which is entrapping African economies even deeper in this resource curse, and which is the opposite of that kind of manufacturing development.

So there is that paradox at the heart of the Chinese bargain and seeing how African States can marshall the Chinese relationship, especially, given the troubles of recent weeks in the Chinese economy and the troubles that seem to be coming. That’s the big test ahead for those African leaders of good faith and integrity, who are trying to work out how they can emulate China.

Fintech: resupplying the supply chain

Posted on by Ben Debski

The New Economy speaks with Britt Lintner and Henning Holter from Tungsten to find out how tech innovations are changing the financial landscape.

The New Economy: How are technological innovations changing the finance landscape? Britt Lintner and Henning Holter from Tungsten join me now to explain.

Well Britt, if I might start with you. How is technology changing the finance industry as we know it?

Britt Lintner: Technology is changing the way we distribute and deliver. We can reach our audience in a much more efficient way: very quickly, very flexibly.

With regard to delivery, we’re able to reach a much wider audience, which you can’t do in the way we did before – one on one meetings, paper due diligence.

Henning Holter: And I think the important thing is to consider it also from the customer’s perspective. Their ability to engage with you changes. And you can do a lot more of your own research, and access to data on information and products, in a much richer vein because you have it all online, and a lot of people prefer to do it online, as opposed to showing up with hat in hand and ask the bank branch manager for a loan – that day is gone.

The New Economy: Now, there has been talk that fintech will actually replace the traditional trader: what do you make of this?

Henning Holter: Probably as a blanket statement it’s exaggerated, but I think there are some traditional lenders who will not make it, who will not get it. They are struggling, or are hampered to some extent by legacy or heritage IT systems, as well as cultural obstacles to engaging with the client.

As an industry I think what we’re seeing is probably a fragmentation with new fintech companies being established, and carving out a position for themselves specifically in the retail and SME sector. That will most likely lead to a consolidation in the industry; and I’m not sure if the banks will be the driver of that consolidation.

The New Economy: And what would you say will be the knock-on effect for small and medium sized enterprises?

Britt Lintner: Well there are more and more alternatives for funding: from crowd-sourcing, to peer-to-peer lending, to online early payment, which is what we do. These sectors have been growing by multiples of 100 percent to date: the numbers are extraordinary.

And from my own experience as a small business owner in the retail sector, obtaining access to working capital was always a huge challenge. And when I was doing that years ago, the banks weren’t as keen to lend anymore. And where we are now wasn’t as hot. The fintech companies, the online non-bank companies were nascent, we were in an embyronic state, so we didn’t have access to that capital.

So when we were dealing with big London stores, having that cash burn issue – trying to find cashflow for three months to six months – was a real stress.

Now that these new sources of funding have become available from the non-bank lenders, it’s really helped with cashflow problems for SMEs.

The New Economy: And would you say traditional bank lending is on the decline? And what’s the knock-on effect?

Britt Lintner: It’s shifting; and those that adapt will win.

The knock-on effect is that the non-bank lenders are the beneficiary of this. And as demonstrated by the Bank of England figures at the end of June, the first quarter of this year showed a small increase. The second quarter dipped, and in the last 12 months to date it dropped by 70 basis points. So I think that data reflects the knock-on effect.

The New Economy: And Henning, how do you think this will impact companies, and how can they even prepare for it?

Henning Holter: Very positive for companies, specifically smaller companies, which will have many more options as a result of this development.

The trick is for them to understand, to explore these options, and look beyond their banking relationships. Because there are a range of different products being made available to them, which had not been cost-effective before. So matching the right product with the funding requirement is very important, and is much easier now if you know where to look.

Cashflow is critical for any small business to grow the business, as we know. So if you can use an invoice financing solution – if you can flip your receivables to cash – it’s an incredibly efficient way to actually manage your cashflow. As opposed to lending for building your second factory, for which you’d have a different product.

So understanding what’s available to you is important, and not be tied to what the bank is offering you.

The New Economy: Well why do you think banks, traditional banks, aren’t adapting in this way? You say they’re not taking up this technology.

Henning Holter: A lot of them have IT systems that are not fit for purpose any more. They’re built in a different world, for a different purpose. And changing that is expensive and cumbersome. It’s a cultural shift that needs to be required. But if you think about it, the entrepreneurs coming through the ranks now are digital natives. They’re used to consuming data very differently. And they’re engaging with their business partners differently. They want it online, they want to be able to make their own decisions without having to meet somebody or call somebody. And that shift is very fundamental for a lot of lenders that don’t get that, embrace that. And fintech companies are built on that premise.

The New Economy: And looking worldwide, where would you say fintech is sort of, leading the way?

Henning Holter: It’s a generational thing – and it’s probably stronger in some countries than others. The UK is very, very advanced, as well as the Nordic and northern European countries advanced in their use and adoption of technology for transacting and interacting with companies where they buy stuff and services they buy.

But it’s also interesting: you see pockets like in Turkey for example, which is incredibly sophisticated when it comes to fintech. Online banking in Turkey is very very high.

So there are probably some analogies with mobile telephony in Africa, which actually bypassed the whole fixed-line technology, because it was just a better technology. And I think you’ll see some of the same things with fintech. It’s actually a more efficient way to bring less-developed countries into a more efficient environment when it comes to banking, and I think that’s an interesting opportunity if you’re open to that.