Africa's moment

Written by: Dr Desne Masie Posted: 03/06/2019

BL62_Africa landscapeWith the political uncertainty around Brexit, US-China tensions, populism in the EU and economic volatility in ASEAN, the Channel Islands are heading to Africa to seek out new opportunities 

Africa is becoming an increasingly strategic continent for the Channel Islands – politically and economically. In September 2018, China committed £46bn to African partnerships at the Forum for China-Africa Cooperation. Also in September 2018, the European Union (EU) pledged £35bn to the continent to help deepen economic relations, boost investment and create jobs.

It seems a folly for the Channel Islands to be left behind, particularly since these waves of activity will require financing, which both islands are expert at facilitating. 

In the past few years, interest in Africa has surged for the islands’ wealth managers, with wealth flows increasing in both directions between Africa and Guernsey and Jersey. This has been supported by an already strong presence of South African companies on both islands. Private banks including Nedbank, Investec and Standard Bank, and asset managers and insurers such as Ashburton and Momentum, all have operations here. 

There are also a number of Channel Islands companies in Africa, such as JTC and Sanne. In addition to this, there is a pivot in economic and political strategy in Guernsey and Jersey, which has seen the islands more determined to step out into the wider world on their own. 

This is not just an insurance policy against the unknown fallout of Brexit – indeed, a strong UK economy is both good and desirable for the Channel Islands – but it is also a strategy to hedge against slower growth in the global economy. 

Paul Wilkes, Group Partner at law firm Collas Crill, says: “While links to the UK are great, as a business and a jurisdiction, we are very aware of that reliance on the relationship with the UK, and with Europe to a greater extent, because things are not diversified. On the funds side, we would like to broaden that appeal or leverage the contacts that are already [in other jurisdictions].

"In terms of the hit list, the UK has been number one, and has been for a number of years. The next three are Asia, the US and the Middle East, and the fourth, especially on the funds side, is South Africa – and this spearheads into Africa more generally.” 

As a partner to Africa, Guernsey and Jersey are expanding what they offer, which includes a stable and innovative operating environment for other jurisdictions amidst global turbulence.

Lindsay Bateman, Business Development Director at Brooks Macdonald, which has offices on both islands, says: “One thing we can offer investors who are looking to invest in Africa, or African investors looking to internationalise, is a sense of stability. Both islands are very stable, socially, politically and economically, and well regulated and outward looking.” 

Strong relationship

Bateman has been in Jersey for 18 years, but is originally from South Africa – the continent’s deepest and most liquid capital market. The relationship between it and the Channel Islands has been a strong and long-running one.

“For over two decades, the South African relationship has been especially significant, and we have a lot of South Africans living and working in Jersey,” says Allan Wood, Business Development Director of Jersey Finance. “But what we are doing now is just the tip of the iceberg. In years to come, we expect to see a significant amount of growth in corporate work.” 

For Guernsey too, the South African relationship is now two decades old and has proved important. Wilkes says: “To date, it’s been more about outflows – institutions or individuals who want part of their wealth out of the South African economy as a currency and a political hedge, given some instability. 

“South African managers [will therefore] set up an offshore fund to complement their South African fund, so that the client is their client both inside and outside of South Africa. That’s a pretty well-trodden path for South African fund managers. Beyond that, there is growing activity in private equity and venture capital investment in South Africa by international investors.”

Most recently, the South African relationship has also helped to facilitate relationships in other African countries. This is certainly the model followed by the Guernsey fiduciary services business, Oak Trust. Its CEO, Mark Chasey, says: “We started in South Africa and built our client base into Botswana, Kenya, Zambia, Mozambique, and we still have a lot of clients in Zimbabwe.”

BL62_Africa_NairobiTwo-way street

Crucially, the islands also want to facilitate capital flows into Africa. “As we move into more markets, we’ve realised Jersey wants to be a part of Africa’s future,” says Wood. He explains that the model envisaged for this is as a conduit for foreign direct investment (FDI). 

This vision was outlined as early as 2014 in Jersey Finance’s publication, Jersey’s Value to Africa. Wood says there is an increasingly diversified mix of activity in both directions – evident from Jersey Finance’s recent Africa roadshow to the three key economies of South Africa, Kenya and Nigeria – which includes mining in South Africa, wealthy individuals in Nigeria, and a balance of inflows and outflows in Kenya.

Wilkes concedes that there are some constraints in financial services outside of South Africa, but adds that there is some potential in inward investments in private equity in Zimbabwe, Nigeria, Ethiopia and Kenya (pictured). “It’s not a huge wave at the moment, but slowly and surely,” he says.

Justine Wilkinson, Director at Jersey trust, funds and pensions company Fairway Group, takes a long-term view on Africa. “Fairway is able to capitalise on this opportunity [by] making informed risk-based decisions rather than discounting clients purely due to the jurisdiction to which they are connected,” she says. 

She advises anyone curious about the African opportunity to “give it a go”. “There are 54 countries out there waiting to be explored and huge opportunities as a result,” she adds.

This reconfiguration of the flow of capital to facilitate investment into Africa has in recent years been very successfully championed by the Africa Financial Services Investment Conference (AFSIC), a popular annual investment conference for those with an interest in the continent, which is run by Rupert McCammon, founder and Director of Jersey-based financial services firm Adventis. 
 
But the stress on capital flowing in both directions is underpinned by a difficult issue that both islands are working to tackle – the perception of international financial centres as tax havens, fuelled by exposés such as the Panama Papers. 

This is not an issue islanders shy away from. In fact, they are keen to talk about the work they are doing to recalibrate their image, particularly with their strong and nimble anti-money laundering framework, their listing as cooperative jurisdictions for tax purposes by the EU, their recent economic substance laws and the legitimacy of a tax-neutral economic policy strategy.

Last December, Senator Ian Gorst, External Relations Minister of Jersey, visited Kenya to sign an asset-sharing agreement to repatriate funds of around $4m that found their way illicitly to Jersey. 

The States of Jersey commented: “Jersey is custodian to $1.7trn and currently provides up to 1.5% of all global FDI into Africa. We want more of this to go from Jersey into Kenya and [this agreement] would greatly help facilitate these investment flows.”

Stephen Whale, Group Director at JTC, has been visiting Africa for the past 27 years. Most of his work there has been in the private client sector, and he also helps multi-generational family businesses in east Africa with capital-raising. JTC has substantial private client and fund administration businesses in South Africa, as well as west and east Africa. 

“Jersey has done a good job in saying that it wants legitimate money going out and in, and deployed in legitimate ways,” Whale says. “But we want to be certain that if we return the money, it is used to good effect.” 

Giving back

Giving back on a more day-to-day basis on a very diverse continent is also what inspires many islanders about Africa. Wood says: “Using Jersey’s skill set, 50 years of experience in finance, and deploying that to African jurisdictions is very exciting. When we look back in years to come, we can be proud of the wealth we helped create.” 

Jersey Finance is also hoping to boost returns to society alongside returns to investors through impact investing. 

The facilitation of financial inclusion via fintech has also seen exciting venture capital and impact investments. Goldman Sachs invested over $50m in South African fintech Jumo in September. 

Mark Healey, Director at fiduciary and administrations group VG, also sees prospects for growth through financial inclusion with Islamic finance in Africa – especially Nigeria, which has a population of 200 million, half of them Muslims. 

Africa is not without its challenges, but improved governance is making things easier. However, where there is great need, there is great opportunity.

EXPERT VIEW

BL62_Africa_AllanWoodAllan Wood, Head of Business Development – Western Markets, Jersey Finance
“Africa’s growing elite has added 19,000 millionaires over the past decade, with total private wealth totalling $2.3trn. These figures are predicted to increase by 34% over the next decade, reaching $3.1trn by the end of 2027. African entrepreneurs are seeking wealth structuring advice, whether it be trust structuring, asset management or private banking – all areas of strength for Jersey. 
“Jersey’s relationship with Africa is not a new one. Jersey has, over many decades, earned a positive reputation across the continent for its first-class private wealth expertise. This relationship is evolving – and now Jersey businesses are moving into new areas such as philanthropy, impact investing and alternative fund work.                    
“Jersey Finance’s strategy remains absolutely focused on Africa and, thanks to our targeted marketing activity and events programme, we continue to set ourselves apart among IFCs in key African markets. Last year, we held events across Africa to build relationships with key gatekeepers in Lagos, Nairobi, Cape Town and Johannesburg. It’s vital that we maintain this focus in 2019 – already this year we’ve undertaken a number of events in Kenya and South Africa and have a full agenda planned for the remainder of the year.”

BL62_Africa_NatashaKappNatasha Kapp, Partner, Trusts and Private Wealth, Carey Olsen (Guernsey)
“Private wealth accumulation continues to grow globally year-on-year, with growth in Africa’s ultra-wealthy population expected to outpace Europe and the US in the next decade. Ultra-high-net-worth African families are becoming increasingly mobile and take a global view. There is, accordingly, increased demand for offshore wealth management services for African entrepreneurs and wealthy families. 
“For Guernsey, there are a number of opportunities in the provision of cross-border wealth strategies, including in the areas of wealth management, succession planning and inter-generational wealth transfer, philanthropy, private investment funds, impact investing, innovation and technology.
“Guernsey is an attractive jurisdiction for African private wealth, in particular South Africa. Indeed, many well-known South African financial services firms have an established presence on the island and have strong local relationships and networks in the region built up over time. 
“Risks are inherently high in Africa. Wealthy entrepreneurs and families want to safeguard at least some of their wealth and investments outside their home country. Guernsey structures can offer a safe haven and mitigate against those risks by facilitating access to overseas markets, hedge against currency risk and political instability. Guernsey’s expertise coupled with local knowledge and a reputation as a stable and well-regulated jurisdiction are a real draw card for clients from Africa.”

BL62_Africa_Dean DouglasDean Douglas, Client Services Director, IQ-EQ
“It is key to view Africa through the lens of being a diverse continent made up of vastly different countries, each faced with unique opportunities and risks. On the whole, Africa offers a wealth of opportunities to global investors, with a multitude of booming economies fuelled by a bounty of natural resources and vast tracts of fertile agricultural land. The fact that the continent is poised to enjoy a huge youth demographic dividend will go a long way in supporting its growth. 
“However, at the same time, it cannot be denied that there are certain obstacles in the way of tapping the immense potential of the continent, including elements of political instability, absence of a cohesive governance framework and recurrent security issues in some economies. In this context, the development of this emerging region calls for a concerted inflow of foreign direct investment, which makes it key to match opportunities with investors and provide the necessary channels to facilitate such investments. At IQ-EQ, we act as a catalyst for both ends of the spectrum – boosting inward investment, on one hand, as well as providing wealth management services to maximise the return on such investment, on the other.”

 


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