Kenya and the multinational bank UBA, which is chaired by Nigerian businessman Tony Elumelu, committed to collaborate in funding infrastructure projects in the country. The agreement came soon after UBA disbursed $150 million (Sh28.8 billion) for Kenya’s Sh129 billion roads bond.
Mr Elumelu shared with the Business Daily his thoughts on how banks and capital markets can meet the challenge of financing Africa’s businesses and infrastructure projects.
You are a champion of African economies leveraging capital markets for funding. There are about 23 economies in the continent that do not have securities exchanges. What would be your message to them?
Countries that do not have securities exchanges should try and develop them because it presents one important source of raising medium to long-term capital, to enable entrepreneurs and businesses actualise their aspirations. Getting the right business environment that will allow entrepreneurs to succeed is important because as they grow, they will want to go to a market where they can raise capital.
As an entrepreneur who has scaled the heights of business, what role has Africa’s capital markets played in your journey?
When I started the United Bank for Africa (UBA), the stock exchange in Nigeria encouraged us to come to the market and even gave us discounts for doing so. This is good and we need to see other exchanges do similar things.
I have been a beneficiary of this because most of the things we have done, have been executed through going to market to raise money.
How do we ensure that Africa’s domestic capital works for the continent?
Already Africa has about $4 trillion worth of domestic capital. The challenge is how to mobilise this capital to ensure that it works for the African people. No one but us will help our continent, so let us channel this capital to infrastructure development.
For example, right now, we are talking about Artificial Intelligence and Africa cannot catch up without investment in electricity.
Pension funds are some of the largest holders of capital in Africa, yet their preference is for the safety of government securities and not the real economy. How do we change this to ensure that this capital flows?
Nations that have developed, have leveraged on pension funds. Often times people blame commercial banks for not funding entrepreneurial businesses and infrastructure, but the nature of commercial banks is that their deposits are short-term and not long-term and so by nature, they are not wired to do long-term funding.
So, when I see pension funds investing in government securities, it is just lazy because they should be used to fund catalytic infrastructure projects. Yes, there are risks. However, one just needs to analyse and identify an insurance mitigation mechanism they can have in place and allow domestic capital to actually work for the African people.
In their defence, pension funds have stated that their high appetite for government securities is as a result of the conservative nature of members. Is this a valid argument?
Pension funds should not be assessed based on the interest income they make from government securities, they should be assessed based on the returns on significant infrastructure they have deployed capital towards.
No nation has ever developed without massive domestic capital mobilisation.
You will always need a blend of what is coming from outside and what has been sourced locally and when foreign capital comes, it often seeks to co-invest with local capital. Pension fund capital needs to be used in constructive and transformative areas in African economies.
You are the chairman of UBA. What do you see as the role of banks in domestic capital mobilisation given Africa’s massive funding needs?
Banks as intermediaries are important economic agents and have a very critical role to play. UBA is not just a bank, we are a development partner. We see immense opportunity for growth and impact through UBA Kenya. Kenya’s youth, innovation and entrepreneurial drive make it one of Africa’s most exciting markets.
What do you see as the key priorities for Africa’s capital markets right now?
We need to continue to strengthen the regulatory environment because that is what gives confidence to all players, because you want to create a market where indigenous and foreign players can come and operate.
We also need to make sure that we have securities exchanges that are liquid because it is one source of raising medium to long-term capital. We also need to deepen knowledge and expertise in the market but that comes with time. Transparency and the ability to repatriate profits is also very important.
